“Start Saving for College Now with a 529 Plan”

– 529 plans allow for prepayment of higher education costs on a tax-favored basis.
– There are two types of 529 plans: prepaid plans and savings plans.
– Contributions to 529 plans do not receive a federal income tax deduction, but earnings on the account are not taxed while the funds are in the program.
– Distributions from a 529 plan are tax-free up to the amount of the student’s qualified higher education expenses, which include tuition, fees, books, supplies, and required equipment.
– Distributions can also be used to make tax-free payments of principal or interest on a loan for qualified higher education expenses.
– Excess distributions are taxed to the beneficiary, with a 10% penalty tax imposed.
– Eligible schools include colleges, universities, vocational schools, and other postsecondary schools eligible to participate in a student aid program of the U.S. Department of Education. 1. Qualified higher education expenses include tuition for elementary or secondary public, private, or religious schools.
2. Contributions to a qualified tuition program are treated as gifts to the student and may qualify for the gift tax exclusion amount.
3. Contributions in excess of the exclusion amount can be spread out over a five-year period, up to $80,000 per beneficiary in 2022 without gift tax.
4. A distribution from a qualified tuition program isn’t subject to gift tax, but changing the beneficiary or rolling over to a new beneficiary may be subject to gift tax.
5. Contact taxinsights@nksfb.com or rwelling@nksfb.com for questions about tax-saving ways to save and pay for college.

Investing in the Future With a 529 Education Plan