Advantages of using a 529 plan to save for college
529 plans help you avoid education debt
Some 46 million Americans collectively hold over $1.7 trillion in student debt.
Meanwhile, advancements in technology, especially automation, are making it harder to earn a living wage without some type of advanced degree. According to a recent study, the average college graduate earns over 80% more than those with just a high school diploma, on average.
529 plans offer tax-advantaged savings for education
529 plan investments grow on a tax-deferred basis and distributions are tax-free when used to pay for qualified education expenses, including college tuition and fees, books and supplies, some room and board costs, up to $10,000 in K-12 tuition per year and up to $10,000 in student loan repayment per beneficiary and per sibling.
Qualified 529 plan distributions are also excluded from state taxable income, and many states offer a state income tax deduction or state income tax credit for 529 plan contributions.
529 plans are low maintenance investment accounts
A 529 plan account can be opened online or through a licensed financial advisor. Families who prefer to “set it and forget it” can select an automatic investment plan linked to a bank account or payroll direct deposit plan. The ongoing investment management within a 529 plan is handled by the program manager.
529 plans have high maximum contribution limits
Unlike a Roth IRA or Coverdell Education Savings Account, 529 plans have no annual contribution limits and high aggregate limits. Maximum aggregate limits vary by state, ranging from $235,000 to $529,000.
529 plan contributions are considered completed gifts for tax purposes and up to $18,000 qualifies for the annual gift tax exclusion. There is also an election to contribute as much as $90,000 in one year without generating a taxable gift if the contribution is treated as if it were spread over five years.
Parent-owned 529 plans get favorable financial aid treatment
529 plans owned by a dependent student’s parent or a dependent student are reported as parental assets and have a relatively minimal effect on financial aid eligibility. Distributions from a 529 plan owned by a dependent student’s parent or a dependent student are not counted as income on the Free Application for Federal Student Aid (FAFSA).
529 plans are flexible
529 plans offer the same benefits for all families, regardless of their household income or the amount they contribute. You can invest in almost any 529 plan, no matter where you live or where your child will attend college.
Compare Washington's 529 Plans