Important Benefits of 529 Plans you May Not be Aware of in 2020
529 Plan is designed to help the individuals and families pay for education. It was initially limited to pay for education up to post-secondary. However, it has been expanded to include K-12 and apprenticeship programs by 2020. It has two major types. One is designed to as a savings plan while the other is to pay for tuition’s. 529 Plan has a tax-deferred growth and tax-free withdrawals for qualified expenses. You must secure the educational future of your children through this excellent plan.
Following are the most prominent benefits of 529 Plan;
1. Income Tax Breaks
A 529 Plan offers the buyers excellent income tax breaks. However, the contributions are non-deductible. As stated above, this plan has a tax-deferred growth and tax-free withdrawals for qualified expenses. There are other savings plans in which buyer is expected to give up a portion of earnings to income taxes. They might even get saddled with the capital gains tax at withdrawal. These tax breaks are the reason why this plan has been such a huge hit with American citizens.
2. State Sponsored Tax Breaks
There are more than 30 states in the United States which offer full or partial tax break over this plan. This offering is in addition to and separate from the federal tax savings. You can continue to claim the state tax benefits for every year you contribute towards the plan. Therefore, it is a smart idea to continue making deposits until the last of tuition bills are paid. If your state does not offer said benefits, you can choose another state’s plan.
3. Donor’s Control of the Account
The beneficiary names in a 529 Plan has no legal right to the funds. Therefore, the donor can be assured that the money will be used to pay for tuition, as intended. This provision in the plan is different from the UGMA/UTMA Plans. In those plans, the beneficiary can take control of account upon reaching legal age. Lastly, the donor is authorized to withdraw funds from the plan at any time for any reason. However, it will incur an income tax and 10% additional penalty tax.
4. Easy Maintenance
It is very easy for a subscriber to manage this plan. You can easily enroll upon visiting the 529 Plan page and following simple instructions. You can subscribe to it and then forget about it as the contributions are automatically made from your bank account.
5. Simple Tax Filing
Your contributions to a 529 Plan are exempt from being reported while filing for federal taxes. You will not receive a Form 1099 for this until you start making withdrawals. In 2020, contributions to this plan can qualify for annual gift tax exclusion. However, only if the contributions are up to $15,000 a year.
6. Flexibility
This financial insurance plan is remarkably flexible for investment purposes. The donor is allowed to change the investments options twice a year. There is no federal legal limit over frequency of such changes if beneficiaries are changed.
7. Eligibility
Everyone is eligible for a 529 Plan. It is unlike Cordell ESA or Roth IRA in this regard. There are no income, age or contribution limits. The lifetime contributions limit varies with the plan. It ranges from $235,000 – $520,000. If you are looking to reduce your state tax, you can elect this plan for a contribution of $15,000 – $75,000.
Secure Educational Future of Your Children Through a 529 Plan
As best insurance company SGA Financial Inc. provides you with an excellent opportunity to invest in a 529 Plan. It can help you invest for your child’s future. Educational expenses – from elementary to apprenticeships. You also gain numerous tax-breaks.
