The college savings industry recognizes May 29 (5/29) as 529 Plan Day nationally. The day highlights the importance of these tax-advantaged accounts and how they help families pay for college and other education expenses.
Why 529 Plans Exist
With college tuition rates consistently increasing at two to three times the inflation rate each year, college graduates enter the workforce burdened with enormous student loan debt. Concerned by this, states began developing innovative programs to help individuals save for their college education.
From 1996 to 2000, 30 states developed and launched a Section 529 Plan. Today, 49 states and the District of Columbia offer Section 529 Plans to their residents, and millions of students have benefited.
You can read more about the History of 529 Plans here.
How 529 Plans Help
529 Savings Plans offer a unique combination of features that no other education savings vehicle (such as a prepaid tuition plan) can match. Read about these features and potential drawbacks of 529 Plans in our article, The ABCs of 529 Plans.
It’s also vital to understand the rules before making 529 Plan withdrawals. Making a mistake, even an honest one, can be costly, resulting in steep penalties.
How 529 Plans Have Evolved
While many rules surrounding college savings plans have remained the same since their inception, some of the rules have evolved. We encourage you to speak with your financial planner about specific questions and have provided some tips below.
In December of 2017, the Tax Cut and Jobs Act was signed into law and included several changes to the tax code. One of the more overlooked changes was expanding what is considered a qualified education expense. Learn How Your 529 Plan Can Help Your Grade School Kids.
In June of 2021, Government Phil Murphy signed the New Jersey College Affordability Act into law. Beginning with Tax Year 2022 (filed in 2023), the bill allows for three income tax deductions on New Jersey returns with a gross income of $200,000 or less. Here’s What You Need to Know About the NJ College Affordability Act.
Other overlooked opportunities include using a 529 Plan to pay for Trade School, Vocational School, and study-abroad programs. There are limitations to which expenses are considered eligible, and the host school must be approved by the US Department of Education. Read How to Use Your 529 Plan to Pay for Studying Abroad to learn more.
529 Plans benefit parents who value a college education and want to save money when making financial contributions. Since no two plans are the same, we encourage you to research your in-state plan first to see if you’ll receive additional benefits, such as tax credits.
We hope our collection of articles helps you better understand 529 Plans and why the industry recognizes 529 Plan Day. Speak with your financial planner to help you weigh the pros and cons of different plans before making your choice.