We often times work with families who are looking to invest in their children’s education. One of the most powerful tools available for this purpose is the 529 plan. Let’s break down what this plan is and how you can use it to your advantage.

What Is a 529 Plan?

A 529 plan is a special savings account designed to help families save for education. The money you put into this account grows tax-free, and you can withdraw it tax-free as well, as long as you use it for qualified education expenses.

What Can You Pay for with a 529 Plan?

Here’s where things get interesting. You can use the money in a 529 plan for a variety of education-related expenses, including:

• Tuition and Fees
• Books and Supplies
• Computers, Software, and Internet Access
• Room and Board
• Special Needs Equipment
• Student Loans

However, you can’t use the money for transportation, health insurance, college application fees, or extracurricular activities.

How to Use Your 529 Plan the Right Way

Understanding what you can and can’t pay for with a 529 plan is crucial. Here’s a simple breakdown:

• Tuition and Fees: You can use the full amount for college or vocational school. You can also use up to $10,000 per year for K-12 tuition.
• Books and Supplies: Only if they are required for a class.
• Computers and Internet: Only if used primarily for studies.
• Room and Board: Must be enrolled at least half-time, and off-campus students are limited to the allowance reported by the college.
• Special Needs Equipment: Must be necessary for enrollment.
• Student Loans: Only up to a lifetime limit of $10,000.

What If You Don’t Use the Money for Education?

If the beneficiary decides not to go to college, you have options. You can change the beneficiary to another family member, pay off student loans, or even roll over the funds to a Roth IRA starting in 2024 (with some limitations).

If you withdraw the money for non-qualified expenses, you’ll face taxes and penalties. However, there are exceptions, such as attending a military academy or earning a qualifying scholarship.

Conclusion

A 529 plan is a fantastic tool for saving for education, but it’s essential to understand the rules. By knowing what qualifies as an education expense and what doesn’t, you can make the most of this investment.

If you have any questions or need personalized guidance on using a 529 plan, please reach out to us directly. Our goal is to help you navigate these important financial decisions and ensure that your investment in education pays off in the best way possible.