Parents and grandparents can fund 529 accounts for each child or grandchild. 529 Plans grow tax deferred and the income and growth are never taxed as long as the funds are used for higher education expenses.
With the new tax bill, parents who send their children to private elementary and high schools will have more options when it comes to saving for tuition. Up until now, the only vehicles that offered tax-free savings for K-12 were Coverdell Education Savings Accounts (ESAs). With tax- free earnings growth and tax-free withdrawals for qualified purchases, Coverdell ESAs operate very similar to a 529 savings plan. However, with ESAs there are earnings eligibility limits, contribution limits of $2,000 and contribution deadline of age 18.
The tax act now permits 529 plans to be used for up to $10,000 per year in K-12 tuition expenses, giving more families an opportunity to save tax-free for private and religious schools. Families who are currently saving with a Coverdell ESA and want to switch to a 529 plan can do a rollover with no tax consequences.
Moreover, with 529 plans, you could be eligible for a state tax break. Currently, over 30 states offer a deduction or credit for contributions to a 529 plan. The amount of the potential benefit varies by state, but deduction limits range from $500 per year (for an individual) to the total amount of the contribution. Some states also allow residents to carry forward any excess contributions above the limit to future tax years. Generally, clients have to use their home state’s plan to qualify for the deduction or credit, but residents of Arizona, Kansas, Minnesota, Missouri, Montana and Pennsylvania may be eligible for a tax deduction for contributions to any state’s 529 plan.
Life Insurance Planning Tip:
Life insurance cash values are considered a non-reportable asset for financial aid purposes.
