If you have college-bound children or grandchildren then you may be interested in establishing a qualified tuition plan for them. These plans are known as 529 plans, so named after the IRS code section establishing the plans. You can contribute to a qualified prepared tuition plan or a savings account established for a specific beneficiary to help pay for that beneficiary’s college tuition. While the contributions are not tax deductible, the funds grow and earn income tax-free. When the designated beneficiary withdraws funds to pay for qualified educator expenses, no taxes are paid on the income! Qualified education expenses include those for any college university, vocational school or post-secondary educational institutions that are eligible to participate in student aid programs administered by the U.S. Department of education. Beginning in 2018, the funds can also be used to pay for qualified higher education expenses such as private or religious elementary or secondary schools.
How to get started? Every state has their own 529 plans and you are not limited to the plan in your state, so research the state plans to find the one best suited to the needs of your designated beneficiary. If you would like assistance in learning more about Qualified Tuition programs please contact the tax professionals at Ken R. Ashworth & Associates.