Here’s how a 529 savings plan can do more than just help you pay for college

Personal finance

A 529 savings plan can do more than just help you pay for college — and those benefits could come in particularly handy during the coronavirus pandemic.

Today is 529 College Savings Plan Day, a day to focus on the advantages of these tax-favored plans. This year, it is being observed just a few months after the crisis upended the lives of many Americans. College students returned home to learn remotely, while the nation socially distanced to try to slow the spread of the virus. And, in the economic fallout of the crisis, many workers — parents and students alike — have lost jobs or had wages reduced, impacting their ability to save and pay for college.

Yet, less well-known uses of 529 plans can help “solve today’s Covid-19-related issue of helping families to retool skills sets in mid-career training, career acceleration and time away from the job market,” said Paul Curley, an industry expert on college savings plans.

Eligible expenses for 529 plans

The two main benefits of 529 plans are that they provide tax-free growth and tax-free withdrawals for qualified education expenses, such as tuition, room, board, fees and books.

Computers, printers, internet service

However, you can also use the money to upgrade your technology, including computers, laptops, printers, internet service and certain software.

Those items have become essential, since many colleges and universities will continue to offer online class in the fall. Some, such as the California State University System, have already announced that all students will take fall classes online.

Graduate schools and apprenticeships

The pandemic also has many people rethinking their job prospects and looking to overhaul their skill sets. Students and their parents can use the 529 funds for graduate schools or apprenticeships. Eligible graduate schools must participate in the federal student aid programs, and apprenticeship programs must be registered and certified with U.S. Department of Labor.

Curley, who is director of savings research at ISS Market Intelligence, suggests thinking about a 529 plan as a “career emergency fund” that offers job protection or job acceleration, since higher levels of education is correlated with higher levels of income and lower levels of employment.

“If 529 plan is not used for your own career emergency fund, it can be used for your children or the next generation,” he said. “It’s becoming more of a family topic, not just parents, but grandparents, aunts and uncles, as well.”

Student loans and private school tuition

If you are struggling with debt, you can pay off up to $10,000 a year in qualified student loans with your 529 funds.

You can also use the money in your account to pay up to $10,000 a year for tuition for your child’s private school.

However, while using your 529 to pay off student loans or for your child’s K-12 education gives flexibility for non-traditional savers, you’ll likely make more money if you stay invested longer, said Madeline Hume, a manager research analyst at Morningstar.

“From a tax perspective and investment perspective, staying the course, starting early and staying invested is the most optimized way to use 529 accounts,” she said.

More from Invest in You:
This is what happens if you stop paying your student loans
These financial tweaks can help you survive and even thrive 
Don’t get caught unprepared if disaster strikes. Here’s how to get ready

“That’s going to be the most profitable way for families to use these plans.”

Hume, who recently authored a major study on the 529 landscape, also cautions against keeping 529 account money invested while you are in college and expecting the gains will be great enough to offset student loans. The Morningstar study found that is unlikely.

Using 529 plan money to pay for college, “preventing students from taking on more student debt, is better,” she said.

Pandemic’s impact on 529 plans

Americans currently have $371.5 billion saved in 14.25 million 529 plans, according to the College Savings Plans Network.

However, the fallout from the coronavirus pandemic has some cutting back on saving.

Despite the benefits, Covid-19-related financial woes have caused 16% of parents saving for college to pause their contributions to a 529 plan, according to a survey by CollegeBacker, an online 529 plan platform. In addition, 13% said they reduced contributions and 17% planned to withdraw funds.

CollegeBacker

Products You May Like

Articles You May Like

Why Some Older Adults Are Rethinking Whether To Downsize
A Perfect Storm For New York City Real Estate Buyers? Get Ready!
Student loan forgiveness could help narrow the racial wealth gap, say advocates. Here’s how
Powell vows that the Fed is ‘acutely focused’ on bringing down inflation
WWE boss Vince McMahon steps away from CEO role, will address misconduct probe on ‘Smackdown’