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529 College Savings Plans – Not Just for College Anymore

A Word From CCU
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529 plans were originally designed to help prepare for future college costs by offering tax-free growth and withdrawals when funds are being used toward “qualified higher education expenses.” In 2017 the benefits of 529 plans were expanded to add K-12 education tax-free distributions for private, public, or religious school tuition expenses of up to $10,000 per year.

What are the types of plans available?

Savings Plan: These work like a 401K and typically offer several investment options to choose from. Your account will go up or down in value based on the performance of the particular option you select.

Prepaid Plan: With these plans, you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges.

Overall, both plans offer tax advantages. While prepaid tuition plans offer the opportunity to cover future tuition payments, savings plan assets can be used for tuition and other qualified expenses such as room and board.

When selecting a 529 plan am I required to invest in my state’s plan?

No. You can participate in almost any plan across the country, no matter where you live. However, you should look at your home state’s plan first because state tax deductions or other savings may be offered. 529 plan funds can also be used at any qualified educational institution across the country, and at many international universities as well.

Is there a minimum contribution to open a 529 plan?

Most plans have a very low initial contribution requirement and there is no maximum income limitation to participate in a 529 plan. Anyone can join regardless of the income of the account holder and in most states, regardless of the age of the beneficiary.

Take this quiz to test your 529 savings plan knowledge.