For parents or grandparents, 529 plans can be a smart way to save for schooling. Here are recent legislative changes:
Saving—
Annual contribution limits double in 2018 from $2,000 to $4,000 per beneficiary.
Paying for expenses—
Beginning in 2018, 529 funds can be used to pay not only for college and other post-secondary education and related expenses, but also for tuition connected with elementary or secondary public, private, or religious school.
The earnings of 529 plan accounts are not subject to federal or state tax when used for qualified educational expenses.
Key points to remember when using a 529 to pay expenses:
- N&Co can help you plan the best timing for withdrawal of your 529 funds to coordinate with tuition credits to help you get the best overall results;
- beware of using funds for non-qualified expenses: while paying a student’s off-campus rent could be considered an educational expense, buying the student a car is not;
- 529 funds only minimally affect financial aid: according to CollegeAdvantage, a 529 fund is considered an asset and, when owned by the parents, is only assessed at a maximum of 5.64% of its value;
- even if your child earns a scholarship for college, a 529 plan can be used to cover non-tuition items such as books, fees, computer equipment, and room & board.