Now that your teens are heading back to school this fall, it's a good time to start planning for their higher education. That means you may be interested in a Section 529 plan account that provides tax-favored savings.
And if you have younger children you'll be happy to know that a recent tax law change has opened up Section 529 plans to kids attending elementary and secondary schools.
Here's what you need to know about 529 plans
Section 529 plans are sponsored by individual states, state agencies or educational institutions. There are two basic types:
With either type of plan, if you fund an account for a beneficiary (like your child or a grandchild), there's no current tax due on the earnings within the account. And when the beneficiary finally enters school, payments for qualified expenses are exempt from tax. The list of qualified expenses includes:
Your younger children may now benefit
Beginning in 2018, the tax breaks for 529 plans are extended to tuition payments for grades K-12 at public, private or religious schools. For example, if you send your child to a prestigious college prep school, you can tap into the Section 529 account to pay for the tuition - with no tax consequences.
However, there is a limit for these younger kids. Plan contributions can only be used for up to $10,000 in school expenses annually.
It's helpful to note that you can roll over unused 529 plan funds for a beneficiary to an account for another beneficiary. This might benefit families who have one child completing college and another in high school.
Call us if you have questions about 529 plans and how you can save with other education savings accounts and tax credits.
To better serve our clients and friends, to keep you up-to-date and informed, our blog is a resource for tax tips and overall accounting related articles. We hope you find this useful!