One great way to save for college is through a 529 plan. These are so easy to set up and best of all, contributing to one can be done by just about anyone you know !!
Before you go out and make your very own account, you should make sure you have all of your questions answered, and now how it works. Fortunately, I was able to partner with the folks who help with the MOST 529 plan (Missouri’s plan) to get a lot of GREAT information about how these plans work.
While the basics of the plans are the same from state to state, you should always contact your own state’s trustee for your plan to ensure you have the information you need for the one where you live.
Q: What is a 529 plan?
A: A 529 plan is a way for parents, grandparents and family members to start to save for college. They are typically sponsored by states, so you can check with your local state to find out if this is an option where you live. Learn more HERE.
Q: What are the tax benefits?
A: Every state has it’s own tax benefits associated with their plan. However, the general idea is pretty much the same. You will need to check with your local state to learn more. If you live in Missouri, check out the MOST page for some great information which easily explains it all. You can also check out the 529 State Tax Deduction Calculator.
Q: What can the money be used for?
A: Money in the 529 plan can be used to pay for tuition, fees, books, certain room and board expenses, and supplies which are required for enrollment or attendance.
Q: How does a 529 plan affect Financial Aid?
A: If the student is a dependent and the 529 account is owned by either the parent or the student, the account is considered the parent’s asset. As a result, up to 5.64% of its value will be added to the student’s expected family contribution (EFC).
For example, a $10,000 529 account will increase the student’s EFC by up to $564.
If the student isn’t a dependent and is the owner of the 529 account, the account is treated as the student’s asset and will generally increase the student’s EFC at the higher rate of 20% of the account’s value.
If the 529 account is owned by someone else (such as a grandparent), it doesn’t count as an asset for federal financial aid purposes. However, when withdrawals are made from the account to pay for college expenses, they’ll generally count as income for the student and, therefore, have a much greater impact on his or her financial aid the following year.
Q: Is it too late to start (i.e. my child is already in high school)?
A: It’s never too late to start saving. Even if your child is a teen, you can still take advantage of tax deductions and tax-free withdrawals.
Q: What happens if my child does not go to college or happens to get a scholarship?
A: We all know it’s hard to predict the future. So if your child doesn’t end up needing the money for college (or grad school or trade/vocational school), you have a few options. You can give the money to someone else (a qualified family member) to use for college. Or you can use the money for anything. However, penalties (on earnings, not contributions) apply when you use the money for costs that aren’t for qualified expenses.
If your child ends up getting a scholarship, you can withdraw up to the amount of the scholarship. You can also make additional withdrawals for other qualified expenses. The earnings on the scholarship amount will be subject to federal, state, and local income tax.
Q: Can the money be used only for schools in your state (i.e. if I save for the Missouri 529 plan, can the money be used on a school out of state)?
A: Your child can attend any college in any state and not just the one sponsoring the 529 plan.
Q: Are there income restrictions when it comes to establishing at 529 plan?
A: Nope! There are no income restrictions at all.
Q: Can I use these funds at any school?
A: A school that has been assigned a federal school code by the Department of Education is generally eligible under Section 529.
Q: Is there an age limit on a 529 plan?
A: No. There is no age limit on who can use a 529 plan.
Q: Can a beneficiary have more than one 529 account? Or are the limited to just one?
A: A beneficiary can have more than one account. For example, parents can open an account for their child and grandparents can also open an account for the same child.
Q: What are main advantages to me opening at 529 plan?
A: These include tax deductions, tax-deferred growth, and tax-free withdrawals.
So, like I said, make sure you share this with grandparents, godparents, family, friends and let them know that can contribute to your child’s 529. It’s a great gift for the holidays and birthdays. Account owners can create a Ugift code after logging onto their account on MissouriMost.com. They can give this code to friends and family. They can then go on the Ugift site and contribute directly into the account. It is just so easy to do!!!
What are you waiting for? Get started on saving for your child’s future today!!
Check out these great resources for even more information: