🔎 Of all the things that take parents’ sleep away, looming college costs may be among the most daunting:
- For the 2023-2024 school year, costs for a private four-year college averaged $55,470 per year for tuition, room, board, books, transportation and other expenses.
- Equates to more than $200,000 to cover a four-year degree. For a single child.
- More than half of those graduating from college in 2022 did so with loans, with an average debt load of $29,400.
Beginning the process of saving for a child or grandchild’s education costs can help limit how much will need to be borrowed for the future student. One possibility is to put the funds into a 529 Education Plan.
What is a 529 Plan?
Named after Section 529 of the Internal Revenue Code, a 529 Plan is a tax-advantaged vehicle you can use to invest in future education expenses, since earnings are tax-deferred, and withdrawals are exempt from federal and, in most cases, state taxes. Let’s look at some advantages:
- The 529 Plan offers flexibility. When you open it, as the account owner, you continue to make the decisions and retain control over the assets.
- Student loan repayment. It can be used to repay student loans or contribute up to $35,000 in unused funds to a Roth IRA for the designated beneficiary.
- Tax-free. In addition to college expenses, up to $10,000 per year per beneficiary can be withdrawn tax-free, federal income tax-free, to pay for K-12 tuition.
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About Contributions
Limits on contributions to 529s are considered gifts for tax purposes. In 2024, annual contributions to each 529 account of up to $18,000, or $36,000 for couples, will be considered gifts and will qualify for the annual gift tax exclusion per beneficiary.
In addition, 529 plans employ a special rule: An initial contribution can be made in a year of up to $90,000 for single filers, or $180,000 for married couples, the equivalent of five years of contributions, without any gift tax consequences.
🎓 When it comes to investing in a 529 Plan, the earlier you start saving, the better, to allow for greater tax-free compounding.
✅ At Wave Tax we provide you with the financial advice you need to invest in your children’s or grandchildren’s education.
📩 Contact us at info@wavetax.us