Another school year is ending. If you have young children, they’re now a year closer to heading off to college or some other post-secondary education. How can you prepare for these considerable costs?
For the 2022-23 academic year, the average estimated annual cost of college — tuition, fees, room and board, books and supplies — was $28,000 for public, four-year, in-state schools and $57,000 for private, nonprofit, four-year schools, according to the College Board.
A 529 plan offers several benefits. Earnings can grow, tax-deferred. Withdrawals are tax-free federally for qualified expenses. You might be eligible to invest in a 529 plan in most states. Depending on where you live, you also might be able to receive some state tax benefits.
You might be able to use a 529 plan to pay K-12 expenses, up to $10,000 per student per year. Not all states comply with this 529 expansion for K-12, so consult your tax adviser. And a 529 plan might be used to pay the expenses of most apprenticeship programs registered with the U.S. Department of Labor.
Starting in 2024, unused 529 plan funds might be eligible to roll over to a Roth IRA for the designated beneficiary. Some restrictions apply. If you are considering a rollover, you’ll want to consult with your tax adviser to determine whether you’re eligible.
You can withdraw funds from a 529 plan to repay qualified federal private and student loans, up to $10,000 for each beneficiary and another $10,000 for each of the beneficiary’s siblings.
If your child is the 529 plan beneficiary but doesn’t want to pursue any type of advanced education, the account owner can name another family member as beneficiary.
Withdrawals for anything other than qualified education expenses might be subject to federal and state taxes, plus a 10% penalty. Make sure to discuss financial aid impacts with a financial aid professional.
A 529 plan has much to offer. It might be a good consideration for your family’s future.
Edward Jones and its financial advisers and employees cannot provide tax or legal advice. This article was written by Edward Jones for use by your local Edward Jones financial adviser. Edward Jones, member SIPC.
– Roberto De Jesus is a financial adviser for the Edward Jones branch on Cedarcrest Road in Acworth.