Freedom with 529s
As I travel around my home state of South Carolina, I see families preparing to celebrate the 250th anniversary of the signing of the Declaration of Independence. Their many patriotic displays show they understand that the ideals put forth and adopted on July 4, 1776, are foundational to the individual liberties we enjoy today. As Americans, we appreciate freedom in every aspect of our daily lives and value the control it gives us.
Even families saving for their children’s future education want the freedom to choose how they use their money. That’s why many families save with a 529 plan. Today’s 529 plans offer account owners who are saving for education more flexibility than ever before. Below are some of the key freedoms that 529 account owners and their beneficiaries can enjoy.
FREEdom in how it’s used
You probably know that 529 funds may be used for tuition, but they’re also available to be used for many more educational expenses. Whether your child will be living in an on-campus student dorm or in an off-campus apartment, you’re able to use 529 funds to pay for qualified housing as well as student meals. In addition, 529 money may be used to pay for books, software, computers, supplies, and any equipment required to complete coursework.
Tax-FREE
Few investment vehicles allow you to invest money and grow it tax-free, but 529 plans do. Earnings from your contributions are tax-free and compounded. Through compounding, any gains your account earns have the opportunity to make more gains – all tax-free.
And when your child is ready to use their 529 funds, you’re allowed to withdraw the money tax-free, as long as the funds are being used to pay for qualified education expenses.
FREEdom in where it’s used
You can’t predict what your child’s dreams and goals will be, so 529 plans provide the flexibility to use your funds at a variety of educational institutions. You may use funds at any accredited two-year or four-year public or private college, university, technical college, trade school, graduate school program, professional program, or apprenticeship across the United States and in many foreign countries. You may also use funds for professional licensing fees or certificates. You may even use 529 money to pay for up to $20,000 per year of qualified expenses at a public, private, or religious K-12 school.
529 FREEdom equals control
Your 529 funds are always your money, and you have options that keep you in control of any leftover funds in your account.
Transfer the funds. If you have unused 529 funds, you can transfer them to another family member or use them yourself if you plan to continue your education. You may also transfer 529 funds to use for a grandchild’s education.
Pay student loans. You may use up to $10,000 of leftover 529 funds to pay off the student loan debt of the beneficiary, their sibling, or another family member. Perhaps one of your children attended a more affordable school, but your other child chose to pursue an advanced degree that required a student loan. This option could be the perfect solution.
Rollover the funds. You can use your 529 funds for the beneficiary’s retirement. If your 529 account has been open for at least 15 years and the funds have been invested in the account for at least five years, you may be able to roll over up to a maximum lifetime limit of $35,000 to a Roth IRA that is owned by the designated beneficiary.
Withdraw the funds. You may withdraw your money at any time, even for non-qualified educational expenses. Withdrawals for non-qualified expenses are subject to a 10% federal penalty as well as income tax, but only on the earnings portion of the withdrawal – not on the money you originally contributed. If your child receives a scholarship, you may withdraw up to the amount of the scholarship without penalty and pay taxes only on your earnings. We encourage you to consult a tax professional for more information about non-qualified withdrawals and any applicable penalty waivers.
FREEdom from student loan debtAs a State Treasurer, I know how important it is for families to understand that they have the power to help their children avoid significant student loan debt. 529 plans are designed to make saving for education as simple as possible so that you can help put your child on the path toward a successful, unburdened financial future. By opening a 529 account early and contributing as often as possible, you increase your account’s earning potential to fuel your child’s education journey.
About the author: Curtis Loftis is the State Treasurer of South Carolina. He also serves as the administrator of South Carolina’s Future Scholar 529 College Savings Plan. Visit treasurer.sc.gov or futurescholar.com for more information on ways to save through a 529 plan.
