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Important 529 Plan Facts You May Not Know

Important 529 Plan Facts You May Not Know

A 529 plan is a highly advantageous way to save for a child’s or grandchild’s college education or pay for elementary or secondary school tuition. Earnings grow tax-deferred and avoid federal—and, in most cases, state—income tax when used to pay for qualified education expenses.

Withdrawals from a 529 not used for qualified education expenses are subject to a 10% tax penalty in addition to ordinary federal and state income taxes on earnings.

Of course, this is nothing you don’t already know. But, did you know…?

Ten Little-Known 529 Facts

  1. The cost of registered apprenticeship programs (for example, engineering or manufacturing) can be paid with 529 savings.
  2. Unused 529 balances can be transferred from one beneficiary to another tax-free.
  3. A 529 plan can be rolled over to a different state plan. This tax-free rollover is limited to once every 12-month period for the same beneficiary.
  4. Funds may be used to pay for tuition at certain international schools. Check out the U.S. Department of Education’s list of qualified higher education institutions.
  5. Gap year and college credit classes are qualified education expenses. If a child wants to participate in a gap year program partnered with a college or university (e.g., study abroad, wilderness survival), those expenses can be met with 529 savings.
  6. In situations where a child receives a scholarship or grant, an equal amount can be withdrawn from the 529 without incurring the 10% tax penalty. Other instances of withdrawals that can avoid the 10% penalty include if the student attends a U.S. military academy, dies or becomes disabled, or receives funding help from a qualifying employer-assisted college savings program.
  7. 529 assets can be used to pay off up to $10,000 in certain student loan debt.
  8. In cases where a beneficiary does not go to college or there are remaining funds, the ownership of a 529 can be transferred to the beneficiary for him or her to decide what to do with the funds.
  9. A 529 plan does not expire. So, if the original beneficiary doesn’t go to college, the funds can be used to pay for a grandchild’s schooling.
  10. 529 assets may be transferrable to an Achieving a Better Life Experience (ABLE) account in the event a child becomes disabled to help pay for expenses related to his or her disability.

As a financial advisor can readily see, many of these little-known facts make 529 plans an exceptionally flexible financial solution that should widen their welcome and usage among clients.

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