A recent report by the College Savings Plan Network revealed that only about 35% of Americans know of 529 plans. And one out of four people who know about this plan tends to connect it with higher education savings. In this article, we will discuss some of the benefits of a 529 college savings plan.
A 529 college saving is an investment that gives you tax-free benefits especially when you are paying for qualified education expenses for a specified beneficiary.
You can use this saving plan to pay for K-12 tuition, college, and apprenticeship program. You can also use the 529 college savings plan to repay your student loans.
Interestingly, when you use a 529 plan to save for college, the savings will have little or no impact on your eligibility for financial aids.
Generally, Education savings plans came into existence with the establishment of a prepaid tuition plan by Michigan Education Trust (MET), in 1986.
After several years, section 529 was included in the internal revenue code. And the section authorizes qualified tuition programs to enjoy tax-free benefits. As of today, there are several choices of 529 plans available to fit into a variety of education savings needs.
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Here are some of the benefits of a 529 Savings Plan;
#1. Registered Apprenticeship Program Qualify
A registered apprenticeship program is one of the benefits of a 529 college savings plan. In other words, you can make a withdrawal from your 529 college savings plan for a registered apprenticeship program without paying any form of tax.
According to the United States department of labor, there are more than 24,000 apprenticeship programs across the country.
And the programs cover different industries including healthcare, engineering, manufacturing, etc. with an average annual of $70,000 for those who complete their apprenticeship.
#2. International Schools Usually Qualify
Some international schools outside the United States are qualified higher institutions that can benefit from a 529 plan. As of today, there are over 400 international schools that are qualified.
What this means is that if you are a student of any of these international schools, you can make a tax-free withdrawal from your 529 plan to sort out qualifying expenses in these schools.
Interestingly, your 529 college savings plan’s beneficiary can still attend Oxford or the University of Toronto and still get tax-free benefits.
You can check the US Department of Education to see the full lists of over 6000 schools that are eligible.
#3. Gap Year and College Credit Classes for High School
A gap year program is one of the benefits of a 529 college savings plan. In recent times, gap year programs are partnering with higher institutions to qualify for fundings from 529 accounts.
Some of these programs are; specific international and domestic gap years, wilderness survival, sustainable living trades, outdoor education, study abroad, and art programs.
According to James Stout from 529 advantage “these gap year programs often prepare you for the reality of life in a way that college education won’t.
Surprisingly, recent data from Gap Year Association reveal that the program’s participants tend to perform well once they start college. And the alumni’s feedback indicated that they had an excellent gap year experience irrespective of the actual program they choose.
Again, several colleges across the United States offer gap year programs directly. For instance, between 90 to 130 students defer matriculation to Havard College just because they want to participate in a gap year. And the school encourages it.
Many other colleges in the United States have similar programs. But these programs vary depending on the institution. And the personal growth and confidence students get from gap year allow them to go into college and graduate on time.
Furthermore, primary school students who are over the age of 14 can also use the 529 funds for college credit classes. Colleges like Brown, Cornell, Georgetown, and many others offer these programs to potential students. And the goal is to allow these students to graduate early.
#4. Get Your Money Back if You Are Not Using it For College
One of the benefits of a 529 college savings plan is that it allows you to get your money back if you are not using it for a college education.
Ordinarily, when you initiate a non-qualified withdrawal from a 529 plan, you will pay tax on earning an additional 10% penalty tax.
But if the beneficiary meets certain requirements, you could avoid that 10% penalty. And that will change the plan from tax-free to tax-deferred. However, you can enjoy these benefits if your beneficiary must;
- Receive a tax-free scholarship or grant. This condition allows you to withdraw a certain amount that is equal to the grant penalty-free in the year your beneficiary got the scholarship or grant.
- They attend a US military academy.
- Have passed away or become disabled.
- Benefits from a qualifying employer-assisted college savings program.
If your beneficiary belongs to these conditions, don’t hesitate to consult with a financial expert for advice.
Again, if none of these conditions apply to your beneficiary, you can still get your money back. Be reminded that you can technically revoke your 529 plans. But it has tax consequences including a 10% penalty tax.
#5. Pay Off Your Student Loans
One of the benefits of a 529 college savings plan is that you can pay off your student loans with it. It’s a common practice for families to take student loans, even when they have enough savings.
But if your beneficiaries graduate with some savings left in the 529 accounts, they can use such leftovers to pay up to $10,000 in certain student loan repayments.
These are the 5 benefits of a 529 college savings plan. Do you know of any other benefits? Let me know in the comment section below.