Smart Moves with 529 Plans: Tax-Advantaged Education Savings Explained

Section 529 plans, long a cornerstone of education savings, are evolving. Today, college savings plans—more flexible and tax-advantaged than prepaid tuition programs—are in the spotlight for families planning higher education funding.

These plans let you invest funds in mutual funds, stocks, or bonds for a designated beneficiary’s college expenses—tuition, room and board, books, and more. Used properly, the distributions are income tax-free, thanks to a permanent change in federal tax law.

College savings plans differ from prepaid tuition plans in several ways:

• Nationwide Usage: Use funds at any accredited college in the U.S.

• Control: Account owners maintain control, including changing the beneficiary.

• High Contribution Limits: Up to $95,000 per donor (or $190,000 if split with a spouse) can be contributed in a single year under gift-tax rules.

• No Income Restrictions: High-income earners benefit from options often unavailable in other education savings methods.

Additionally, assets in these plans are treated as the account owner’s—not the student’s—for financial aid calculations. Grandparents, notably, may benefit from better aid profiles by owning the plan.

Tax law now allows one penalty-free transfer between investment options per year, enhancing control. You can even use 529 plans for K-12 tuition—up to $10,000 annually—thanks to the Tax Cuts and Jobs Act.

Tips for Choosing a Plan:

• Look at your own state’s plan first—it might offer tax breaks.

• Compare investment options and fees—costs vary greatly.

• Consider guaranteed-return plans to hedge market volatility.
  

Each state’s plan differs. Choosing the right one should align with your financial goals, tax situation, and long-term education plans.

📞 Ready to plan smarter for education? Contact Verity CPAs at info@verity.cpa or 808.546.5026 to explore your optimal 529 strategy.