A 529 plan is a tax-advantaged investment account designed to help families save for future education expenses. Named after Section 529 of the Internal Revenue Code, these plans offer a flexible and efficient way to set aside funds for a beneficiary's education.
Tax Benefits:
- Tax-Deferred Growth: Contributions to a 529 plan grow tax-deferred, meaning you won't pay taxes on the earnings while they remain in the account.
- Tax-Free Withdrawals: Withdrawals are tax-free when used for qualified education expenses, such as tuition, fees, books, and room and board.
- State Tax Deductions: Many states, including New Jersey, offer state tax deductions or credits for contributions to their 529 plans.
Qualified Education Expenses:
- Funds from a 529 plan can be used for a wide range of qualified education expenses, including:
- Tuition and Fees: For colleges, universities, vocational schools, and other eligible educational institutions.
- Room and Board: For students enrolled at least half-time.
- Books and Supplies: Required for enrollment or attendance.
- Computers and Related Equipment: If used primarily by the beneficiary during their years at an eligible educational institution.
- K-12 Tuition: Up to $10,000 per year for tuition at public, private, or religious elementary or secondary schools.
- Student Loan Repayment: Up to $10,000 lifetime limit for the beneficiary and each of their siblings.
Who Can Open a 529 Plan?
You can open a 529 plan for any student of any age if you meet the following requirements:
● You’re over the age of 18
● You have a Social Security Number or a tax identification number
● You have a permanent legal U.S. mailing address
That’s it! You don’t even need to be related to the student, and you can even open the account for yourself. Plus, there’s no income limit to worry about.
But before you get started, make sure you know the facts about 529 plans.
10 Things You Should Know About 529 Savings Plans
1. They Pay for More than Just Tuition
529 plan funds can be used for a wide range of qualified education expenses beyond just tuition. This includes mandatory fees, books, supplies, and equipment required for enrollment or attendance at eligible educational institutions, as well as room and board for students enrolled at least half-time. The funds can cover certain certified apprenticeship expenses and up to $10,000 can be applied towards the principal or interest of a student loan for the beneficiary or a sibling. Additionally, up to $10,000 per year can also be used for tuition expenses at private, public, and religious K-12 schools, although state tax consequences may vary.1
2. You Can Change Beneficiaries
The beneficiary can be changed to a member of the immediate or extended family (including siblings, grandchildren, nieces, nephews, cousins and more).
3. The Owner Controls 529 Plan Assets
The account owner—not the beneficiary—maintains control of the assets, including how and when they will be used.
4. Flexible Contribution Amounts
Some 529 plans allow account owners to open an account with as little as $25. Most plans allow account owners to contribute $300,000 (or more) per beneficiary over the lifetime of the account.2
5. Wide Range of Schools
Your 529 plan isn't just for traditional four year colleges. Whether your child dreams of becoming a physical therapist, a journalist, or an engineer, these savings can be used at a variety of educational institutions including two-year colleges, trade schools, and technical programs across the country.
6. No Income Restrictions
Anyone can open a plan regardless of his or her income.
7. Multiple Investment Options
Most 529 plans offer a wide range of investment choices allowing you to invest your assets in the portfolio(s) that best suit your education savings goals.
8. Convenience
Many 529 plans offer features that make it a convenient way to save for college, including recurring contributions and portfolios that automatically rebalance as the beneficiary gets closer to college.
9. Earnings Grow Tax Free
Contributions into a 529 plan grow tax-free, and withdrawals for qualified educational expenses are also tax-free. This could add up to more savings for families like yours.
10. Estate Gifting
Grandparents, aunts, uncles, and family friends can easily contribute to your child's NJBEST plan, making it the perfect gift for birthdays, holidays, or celebrating achievements.
Next Steps
It’s never too early to start funding a child’s education. The typical out-of-pocket cost of a college education today can run into the tens of thousands of dollars—if not more. You’ll need to double or triple that figure if the child attends private or religious primary or secondary education before then, so your money needs to start working right now.
To learn more, check out all of your investment options.
To open a 529 plan today, it’s never been easier than with NJBEST.
