Happy National College Savings Day!
May 29, National College Savings Day, is a tribute (and play on words) to the 529 college savings plan.
Named after section 529 of the Internal Revenue Code, 529 college savings plans are a popular vehicle to save for a child’s, grandchild’s, or other loved one’s future education expenses. Accounts are generally invested in mutual funds, which could provide growth over time. Anyone – not just parents – can contribute and make a gift to someone’s college savings account.
The primary attraction to a 529 college savings plan is the tax advantage. Earnings grow tax-deferred and distributions are federally tax-free, provided that the money is used for qualified education expenses for the beneficiary.
Qualified education expenses are defined by the IRS. Such expenses generally include tuition, room and board, and books at any accredited college nationwide.
Our office published a blog article in 2016 called “The ‘Cliff’s Notes’ about College Savings Plans” with more details.
The Tax Cuts and Jobs Act of 2017 opened the door for 529 plan withdrawals to be federally tax-free for K-12 private school tuition (up to $10,000 per year, per student) in addition to higher education expenses. (Just ensure your specific account provider allows for it.) However, it would typically make most sense to keep the account invested until a child’s college years in order to lengthen the time the account could grow tax-free.
The nonprofit group College Savings Plans Network coordinates National College Savings Day annually. National College Savings Day of May 29, besides being a clever pun, reminds us to consider our young ones’ future academic endeavors – and expenses – sooner rather than later. Like saving and investing for any goal, saving for college works best with time on our side.
Please let us know if we can answer any questions or help your family plan for your little one’s exciting future.