Mike smiled as he watched his grandson, Jake, graduate from kindergarten. He dreamed of Jake’s future, especially his graduation from college. His smile faded as he visualized his grandson dealing with a mountain of school loan debt. Fortunately, Mike knew several ways to save for Jake’s college education, including funding a 529 account on his behalf.
An Education Plan For The Future
A 529 plan is a “tax-advantaged savings plan designed to encourage saving for future college costs.” Although authorized by Section 529 of the Internal Revenue Code, these plans are managed by state agencies or educational institutions. Money can be withdrawn tax-free to be used for qualifying higher-education-related expenses.
The Arizona plan is called the Arizona Family College Savings Plan. Though some states offer prepaid tuition plans and college savings plans, Arizona offers only the savings plan. Though there are not income restrictions on who can open a 529 plan, there are limits to the account balance. In Arizona, the limit is $431,000.
Keep in mind that investors are not forced to invest in their home state. For example, someone living in Arizona could set up a Virginia 529. Funds invested in an Arizona 529 could be used in an accredited college in any state.
Each 529 account can only have one owner and one beneficiary. However, anyone can contribute to the account. Account holders may open multiple 529s if, for example, they had more than one student to save for.
How Will A 529 Plan Help You?
These plans offer benefits to the account holders and contributors:
- Due to our new tax law, up to $10,000 of 529 funds can be withdrawn each year to pay for K-12 educational expenses. For instance, your savings plan may help you pay for private school.
- You won’t have to pay tax on the account’s annual earnings. Withdrawals are not taxed as long as the money is used for qualified educational expenses.
- Each year you contribute, you’ll receive a deduction or credit on your state income taxes.
- In most cases, the account owner controls the account, not the beneficiary. You can make sure little Susie doesn’t withdraw all the money to buy a Porsche the minute she turns 18.
- Though you control the account, money managers will handle investing it with little or no input from you.
- If your student decides not to attend college, funds in the account can be transferred to another 529 account. Withdrawing the money for any reason other than education expenses, however, would lead to penalties and tax being owed.
Still Have Questions?
A 529 College Savings Account could provide important tax benefits for you while helping guarantee your children and grandchildren can afford college. It’s best to make your 529 Plan part of your overall estate planning strategy.
The attorneys at the Keystone Law Firm are well-schooled in all aspects of estate planning. Call us at (480) 418-8448 to set up an appointment. We offer services for clients throughout Arizona, including Chandler, Gilbert, Sun Lakes, Tempe, Phoenix, Mesa, Scottsdale, and Apache Junction.
