A 529 Savings Plan is an educational investment plan that allows tax breaks for educational based expenses. Similar to a Roth IRA, but with education in mind, the plan is a tax advantaged savings account focused on encouraging and easing future educational plans.
As your savings compound over a period of time, withdrawals associated with qualified educational expenses will not be subjected to tax. This differs from a typical savings account where withdrawals are deemed as capital gains and is thus taxed.
Savings from the 529 plan can only be spent on qualified education expenses. There is a 10% tax penalty on unqualified noneducational expenses.
To avoid any taxes or penalties on withdrawals, your best option is to transfer the account to a new beneficiary who will use the money for educational expenses. Otherwise, the gains on any withdrawals from the account will be subject to taxes and a 10% penalty.
While education accounts were originally created for college expenses, it’s also possible to use the money for K-12 tuition. Qualified educational expenses include books, room and board, computer equipment and tuition.
While education accounts were originally created for college expenses, it’s also possible to use the money for K-12 tuition. Qualified educational expenses include books, room and board, computer equipment, and tuition.
Both 529 plans and TrustFundRegistry custodial accounts provide a great tax-advantaged way for parents and others to help save for a child’s tuition and other educational expenses. TrustFundRegistry’s Investment Account for Kids offers a significant benefit to parents that are looking for a flexible way to save for all the future life stages your child will experience. This may or may not include education.
In contrast to 529 plans that can only be used for qualified educational expenses, you can use the funds you invest in TrustFundRegistry for any expense that benefits the child named on the account. If an account holder uses funds from a 529 plan for non-education related expenses, they lose tax advantages and earnings are subject to a 10% penalty.
Contributions to 529 plans are treated by the IRS as gifts, and as of 2020 you can contribute up to $15,000 per year ($30,000 as a married couple) to qualify for the annual federal gift tax exclusion.
It is also possible to “superfund” the next five years of contributions ($75,000 per person or $150,000 as a couple) using the option of one-time deposit, but we generally recommend initiating a recurring monthly contribution, to spread out your contributions over time.
Proceeds from 529 plans need to be used only for qualified educational expenses. Non-qualified eduactional expenses are subjected to a 10% penalty on the earning’s portion.
If you withdraw money for non-qualified expenses, you are subjected to paying taxes and a 10% penalty on any gains that are part of your withdrawal. The amount of your original contributions are not subjected to taxes or the penalty.
Please reach out to our customer support at support@TrustFundRegistry.com to discuss the conversion process.
TrustFundBaby is the tradename of TrustFundBaby LLC, an SEC-registered investment adviser. Our internet-based investment advisory services are designed to assist clients in saving for college and are not intended to provide comprehensive tax advice or financial planning. Our services are available to U.S. residents only. This website shall not be considered a solicitation or offering for any service or product to any person in any jurisdiction where such solicitation or offer would be unlawful.
Investing in securities involves risks, and investing in 529 plans in particular involves certain tax considerations and related risks. Any investments you make in a 529 plan through TrustFundBaby may lose value. Historical returns, expected returns, and probability projections are provided for informational and illustrative purposes, and may not reflect actual future performance. Our savings calculator and pricing comparison are hypothetical tools provided for illustrative purposes only and are based on important assumptions described here.
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