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529 Savings Plans

Steve Grgas

September is here and school is back in session. Your kids are one year older and hopefully one year closer to heading off to college. Whether that prospect excites you or terrifies you probably depends on the day, but the specter of college tuition is a constant. Regardless of whether your children are starting kindergarten or high school, college costs just got closer. Did you know there are tax advantaged savings plans that can help you build a larger education nest egg for your children?

The 529 College Savings Plan is designed to make it easier for families to save for college. The plan provides a tax incentive that makes earnings on these savings tax free when they are used to pay for qualified education expenses.  Contributions are made after tax, so they don’t provide immediate federal tax benefit like a traditional IRA, but work more like a Roth IRA, where income on the investments can be exempt from tax if used for qualifying education expenses. In addition to the federal benefits, many states, including New York, provide a deduction for contributions into qualified 529 plans. New York provides up to a $5,000 per year deduction ($10,000 for married filing jointly) into New York’s 529 Direct Plan.

The earlier you start contributing to a 529 plan, the more benefit you are likely to receive. When the time comes to pay those costly college bills including tuition, fees, books, and supplies, you can use the earmarked funds that have been growing tax-free in your 529 plan. 529 plans aren’t just for parents either. They are a great way for grandparents to contribute to their grandchildren’s future in a tax advantage way.

529 college savings plans can also be used in combination with available education credits such as the Hope credit or the Lifetime Learning credit, though some limitations and requirements exist to retain the tax free treatment of 529-related income.

Regardless of the age of your children, it’s never a bad time to open a 529 plan. Think of it like your retirement. The sooner you get started, the better off you’ll be. Presti & Naegele can work with you to determine which plan is right for you, and to ensure that all requirements are met to establish and fund your plan. And when the time comes to send your kids off into the world to study, we will be there to help you utilize your 529 plan and other credits and incentives. Call your Presti & Naegele advisor today to talk about how a 529 plan can help you provide for the future.