One of the big perks of using a 529 plan to save for college is that many states offer a tax deduction for contributions to the plan. But, like anything, there are rules that apply.Some states require you to contribute to their state’s plan, while other states allow you to take the tax deduction for contributions to any state’s plan. Finally, there are (sadly) states that don’t offer any incentives for contributions.Also, the rules for withdraw can also impact your taxes. Make sure you understand the differences in qualified 529 plan withdrawals so you aren’t paying taxes and penalties!
A 529 plan allows you to contribute money for educational use. The funds must be used for education, which includes college or K–12 tuition.The owner/donor of the account remains in control of the account. This is different from a UGMA or UTMA account, which allows the beneficiary to take control of the account once they reach legal age.
529 plans do offer state tax deductions on contributions. But not every state offers the deduction. 529 plans do not offer federal contribution tax deductions.
Yes. Fees can vary greatly depending on the state and investment plan.
You can open a 529 plan with your brokerage or by searching for 529 plans. Once you find one you like, you’ll choose an in-state or out-of-state plan. After the account is opened, you can then choose one of the investment options offered by the plan.Check out this list here and see where to open the 529 plan that makes the most sense for you:
If by safe you mean FDIC-insured, that will depend on the investments in the 529 plan. Some states do offer FDIC-insured plans. Check with the plan administrator to be sure.However, remember that most 529 plans are investments – they could lose money over time.
For most states, you must contribute to your state’s 529 plan (as opposed to an out-of-state plan) to receive any state tax benefit. However, seven states offer tax parity, which allows you to contribute to any 529 state plans. These seven states are:If your state has no income tax, the 529 plan tax deduction doesn’t apply. These states include:Some states do have income taxes but no 529 plan tax deduction. They include:According to finaid.org, the following states offer deductions:
If you want control over the money you’re putting toward a beneficiary’s college tuition, then yes — it is worth it. Be sure the funds will eventually be used for education. If not, you’ll incur a 10% penalty, plus you’ll be taxed at your ordinary income tax rate for non-educational use of the funds.