Regardless of the year, May 29 (5/29) is always 529 Day – a kind of holiday to celebrate and encourage the use of 529 College Savings Plans. With that in mind, many states and plan administrators are offering additional incentives to entice consumers to use their plans by this date. These incentives can include matching funds for opening a 529 plan and adding money as well as sweepstakes and contests inspired by the 529 plan.
If you haven’t started saving for college yet but would like to dive in ASAP, you might be wondering if a 529 plan is right for you. The fact is, 529 education savings plans can be confusing since each state seems to have its own plan or several to choose from, and since the tax benefits of contributing may vary (or even not exist) depending on where you live.
Ins and Outs of 529 College Savings Plans
First, you should know that 529 College Savings Plans were created to help families save for college in a tax-efficient way. These plans are investment accounts that come with tax advantages that vary by state, and those who use them can tap into their funds to pay for college, K-12 tuition. in a private school, apprenticeship programs and even student loan repayments if they choose to do so. then.
While 529 plans were originally created in 1986, they became considerably more popular when they were added to the Internal Revenue Code about a decade later. According to Federal Reservethe way 529 plans were envisioned led to them being sponsored by individual states, and every state currently has one except Wyoming (but don’t worry – if you’re in Wyoming, you can use other states’ plans).
The main advantages of 529 education savings plans are:
- Potential tax benefits in your state: Some states offer tax benefits for contributing to a 529 college savings plan, so be sure to check the benefits that apply where you live. For example, the state of Indiana offers a 20% tax credit on the first $5,000 you contribute to a 529 plan each year. This means that those who maximize this benefit receive $1,000 from the state when they file their taxes each year.
- Money can be invested: You can invest the money in your 529 plan for long-term growth. Many 529 plans use target date funds that reduce risk as your child grows and approaches college age, but many other investment options may be available depending on the plan.
- Funds in a 529 plan grow tax-free: Funds in a 529 College Savings Plan can grow tax-free, so you won’t have to pay taxes on gains in your account as they occur.
- Money can be used tax-free for qualifying expenses: Funds from a 529 savings plan can be used for eligible college expenses such as tuition and fees, on-campus meal plans, books, and supplies. You can also use 529 funds up to $10,000 per current student in private K-12 schools, or to pay off student loan debt up to $10,000 per borrower.
Another advantage of these accounts is the fact that anyone can open one and use one. In other words, 529 plans aren’t limited to just parents, and they don’t have income caps that limit who can contribute.
Be aware that although these plans have no annual contribution limit, contributions are considered donations for tax purposes. Fortunately, contributions from grandparents and other relatives of up to $16,000 per year are eligible for the annual gift tax exclusion in 2022, according to the Tax Service (IRS).
New Incentives to Celebrate Day 529
Some states are offering incentives to families who open a 529 college savings plan on 529 Day this year. You can learn more about all the 529 plan education savings promotions herebut some of the highlights are listed below:
- Florida: The State of Florida is offering a bonus for new Florida 529 savings plans opened by June 30, 2022. Just open a Florida 529 savings plan and you will immediately get a $50 bonus.
- Indiana: Indiana State hosts a 529 Day Contest for their CollegeChoice 529 savings plans through May 29. All you have to do is complete an online entry form and share a photo of the person you’re saving for for a chance to win a $529 contribution to your account.
- Nevada: The USAA® 529 College Savings Plan, presented by Victory Capital and administered by the State of Nevada, offers two potential bonuses – a $100 “investment bonus” with an initial deposit of $50 and a monthly automatic investment plan of $50, and a referral bonus of $100 (up to $500 in total) when you refer family or friends.
- Ohio: Ohio’s CollegeAdvantage 529 Savings Plan is once again hosting its College Savings Grand Slam contest alongside the Cincinnati Reds. The lucky winner of this contest will receive a $10,000 college savings scholarship to their 529 savings plan.
Apart from state plans, Funder – the 529 plan robo-advisor – is launching Backer Boosts, which will automatically add a $529 boost to your account when you open a new account and make monthly contributions of $25. This boost will help you start earning right away in your 529 plan! Over time, your regular contributions will cover the boost, but you can still keep any extra money you earn from that larger initial investment.
With sky-high higher education prices not expected to drop anytime soon, saving for college is probably a smart move. After all, having money tucked away in a 529 plan can help you minimize student loan debt while increasing your flexibility when it comes to college choice.
That said, you will need to do some research to find the right 529 college savings plan for your needs. Be sure to first look at the plans offered by your state, and don’t forget to check for potential tax breaks, fees charged to administer the plans, and minimum contribution requirements.
Also, be sure to compare plans based on the investment options they offer, which may include index funds, target date funds, exchange-traded funds (ETFs), or even insured mutual funds. the FDIC. Ultimately, the right 529 plan for you is one that allows you to maximize your college savings with the lowest amount of required fees.