When you reflect on your life’s path, you are probably grateful for the education you have received. This is something to think about from a legacy planning perspective, and you can pay it forward through the utilization of a 529 college savings plan.
Financing Higher Education
If you know how a Roth individual retirement account works, you can apply that structure to the 529 plan. Contributions into the account are made after taxes have been paid on the income, and the interest accumulates tax-free over the years.
When the beneficiary is ready for college, the withdrawals can be used to pay for tuition, books, fees, lodging, and meals. The distributions are not subject to any further taxation.
In addition to the obvious benefit when the student is actually attending college, the 529 plan serves another purpose. Younger students are more focused on their studies when they know that they will definitely be able to go to college, and this is another inherent benefit.
Savings Plans vs. Prepaid Public University Plans
Traditionally, there have been two different options available when you establish a 529 savings plan. With the traditional savings plan, the student can use the funds to attend any approved institution of higher learning.
The other option is the prepaid public university plan. If you go this route, you purchase in-state college credits that can be used to pay for public college expenses.
You forfeit freedom of choice, but you are purchasing credits at the current rate. Since the student will be attending college when the costs are considerably higher, this is a major advantage.
The prepaid plans still exist in a relative handful of states, but they are no longer available for Connecticut schools.
K-12 Education Expenses
Prior to 2018, the 529 plans were strictly college savings plans. However, at the end of 2017, a provision in the Tax Cuts and Jobs Act expanded the scope of these accounts. You can now use up to $10,000 per year, per beneficiary to cover K-12 education expenses.
Income Tax Implications
In Connecticut, you can deduct your 529 contributions when you file your state income tax returns, but there is a $5,000 annual limit for a single return and a $10,000 limit for a joint return.
Withdrawal Penalty
You can take money out of a 529 savings plan for any reason, and this can be comforting, because you never know what may happen in the future. If you do this, you have to pay a 10 percent penalty, and interest accumulation is subject to taxation.
Attend an Upcoming Seminar!
We go the extra mile to provide educational opportunities to members of our community through the seminars that we present on an ongoing basis. You can learn a lot if you attend one of these sessions, and they are being offered on a complimentary basis.
You can obtain more information if you visit our Estate Planning Sminars Page, and you can follow the simple instructions to register for the session that fits into your schedule.
Need Help Now?
If you have already decided that you are ready to work with a Westport or Glastonbury, CT estate planning lawyer to put a plan in place, we are here to help. You can send us a message to set up a consultation appointment, we can be reached by phone at 860-548-1000.
