According to the U.S. Securities and Exchange Commission, a 529 plan is “a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.”
President Trump made revisions to the tax bill allowing families to use 529 funds to pay tuition at private K-12 schools. It’s mostly wealthier people who can save enough to reap large benefits from the provision, which allows $10,000 in annual tax-free 529 account withdrawals for pre-college students starting in 2018. Benefits for individuals who use 529 plans:
For those who have the money, with 529 plans, you put money in, let it grow for years in mutual funds and then pull it out to use for higher education expenses. When you do, you don’t pay capital gains taxes on what you’ve earned over time.
States, not the federal government, administer the plans, and 35 of them offer some type of tax deduction when you deposit money.
A good scenario to analyze is “Imagine a wealthy family in the highest tax bracket that opens a 529 plan with $200,000 and doesn’t add another cent. The money grows at 6 percent annually, and the family takes out the maximum $10,000 each year, avoiding $2,380 in taxes annually. During the elementary and secondary school years, it saves $30,940 in taxes.”
Other benefits of 529 plans include:
-529 plans offer unsurpassed income tax breaks
-your own state may offer tax breaks as well
-the donor stays in control of the account
-its low maintenance
-simplified tax reporting
-flexibility
-everyone is eligible to take advantage of a 529 plan
Health insurance is so important for college students, and if you don’t stay on your parent’s plan, many people opt to use a plan provided by the college or university. Many schools offer health services and insurance on campus, which is helpful. However, once again, just because the expense is billed by the university, it’s not education related, and so you cannot use your 529 plan money for it without paying a penalty. so if you are taking advantage of a 529 plan, be sure to sign up for a health insurance plan.
As an independent agency, Cosmo can help you select the best individual health insurance plans in New Jersey or family coverage from a broad range of insurers catering to the individual healthcare coverage market. Cosmo has particular expertise is in the ACA individual marketplace exchanges. Our individual health insurance brokers in New Jersey have the knowledge, personal attention, and honesty, that will help you make an informed choice.
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