529 plans are the most underutilized of the tax advantaged accounts which include 401K’s, IRA’s and HSA’s. Whereas the others are intended for larger expenses, 529 plans are specifically for education expenses, which is perceived to limit the tax benefits. Furthermore, state laws and plan options are limited and varied, but the recent tax reforms have made 529’s much more useful. Here are ways to maximize the benefits.
The primary tax benefits come in exempt growth. Any money earned through investments will not be taxed. Over time, the balance will grow faster than a regular savings account.
It is easy to transfer 529 plan money between immediate family members. Unlike retirement accounts that are locked in until the account owner retires, with 529’s, if one child goes to a more expensive school, money can be diverted to those fees. Likely, if you need to go back to school for training, you can utilize funds for that.
The latest tax changes expand 529 plans to any level of education. It can be used to pay for private school, home school, school supplies or any other education expenses throughout a person’s entire life. This may reduce the cost of schooling for some families.
Although 529 plan contributions are not tax deductible, their benefits with the new tax reform and the flexibility of maintaining a family education fund can offset the ever increasing costs of education.