529 Plans Help Save for College Expenses
As many parents of college students will tell you, the cost of their child’s education may be more than they originally planned. Higher education costs continue to rise, leaving many of us wishing we had a secret nest egg or an additional savings account just for college expenses.
A 529 savings plan is one way for parents of young or school-aged children to have a little extra money saved for future college expenses. It gets its name from Section 529 of the Internal Revenue Code, which created these types of savings accounts in 1996.
These plans are managed by states, and most all states have at least one. It is up to each state to decide what their particular plan looks like and select the financial institution to manage it. The Kentucky Education Savings Plan Trust is the 529 plan for this state. Information about it is available at www.kysaves.com/.
Enrollment in a 529 plan is not dependent on your state of residence or the location of the college. Therefore, you can choose to enroll in any 529 plan offered throughout the country.
Most colleges accept 529 plans. If you have a particular school in mind, you can find out if it accepts 529 plans by visiting www.savingforcollege.com/eligible_institutions/, or by speaking with the college’s financial aid office.
529 plans have definite advantages. While the money you, friends or family put into the plan is not tax deductible, money in the plan is allowed to grow tax-free. As long as the money is used to pay for college expenses, it will not be taxed when it is withdrawn. You will not receive a Form 1099 to report any taxable or nontaxable earnings until the year you begin to withdraw from the account.
Another advantage is you will stay in control of the account, even though your child is listed as the beneficiary. Only the account holder is allowed to withdraw funds. This gives you the peace of mind in knowing that your funds are being used for their original intended purpose.
The account also offers the flexibility to be used by anyone in the family with a qualifying educational expense. If money is still in the account after the first beneficiary is finished with their higher education, then those funds can be rolled over into the 529 account of another child. You or your spouse can also choose to use these funds if one of you decides to pursue a degree or take a college course.
The website www.savingforcollege.com is an excellent resource for information if you are interested in learning more.
For information on how to be a better saver or other family financial topics, contact the Oldham Cooperative Extension Service.
Chris Duncan is the Oldham County Family and Consumer Science Agent.
Educational programs of the Kentucky Cooperative Extension serve all people regardless of race, color, age, sex, religion, disability, or national origin.