College is expensive, but saving for it can quickly become an overwhelming and tedious task. Did you know there are numerous 529 plan tax benefits that can impact how you save for college? Unfortunately, most people are completely unaware of what these plans can do for their children — or how to make the most from this type of savings.
Knowing your options (and how the state you live in impacts those options), you can start investing in your child’s future in no time, ensuring you are getting the biggest bang for your invested buck and allowing you to plan your taxes accordingly. This guide will discuss what a 529 plan is as well as the tax benefits these plans can provide you and your offspring.
529 Plans: The Basics
A 529 plan is a tax-advantaged investment medium designed to encourage saving for higher education expenses. These plans are generally considered a college savings plan that offers financial aid benefits and tax benefits, but college costs are not it’s only use: 529 plan funds can also be used to save for K-12 tuition.
There are two major types of 529 plans: prepaid tuition plans and college savings plans. College savings plans tend to grow tax-deferred, with withdrawals being tax-free if used for a qualified education expense, while the prepaid plans allow the account owner to pay in advance for tuition. This can lock in ever-growing college cost at today’s rates.
A State-by-State Breakdown of 529 Plan Tax Benefits
The 529 plan is administered by all 50 states, including the District of Columbia. Anyone can open a 529 account, but they are usually established by parents or grandparents of a child. The tax benefits of setting one up differ by state, however, so it is important to understand the implications for the state you live in.
Here’s what you need to know about your state-level benefits of setting up a 529 plan:
Taxpayers can deduct up to $5,000 as an individual or $10,000 for married couples filing jointly every tax year for contributions to their 529 plan.
District of Columbia (Washington, D.C.)
Ask a Tax Lawyer about Tax Benefits of 529 Plans in Your State
If you are considering a 529 plan but not sure where to start. Contact Silver Tax Group today! Our expert tax professionals are ready to answer any questions you might have about 529 plan tax benefits and more.