As we finish up with high school graduation parties, discussions come up about plans on how to cover college expenses. The big proponent to 529 plans are that they give us a tax-advantaged way to help cover those expenses.
Today, there are only a few states that don’t allow tax deductions for contributions to 529s (CA, DE, HI, ME, NJ, NC). New legislation allows us to use 529s to pay for education for Kindergarten through 12th grade. Participants of a 529 plan are allowed to spend up to $10,000 per year to cover K-12 expenses for private or religious schools. Previously, we would have needed to use a Coverdell ESA plan. These have income eligibility limits and contribution limits at $2,000 per year.
Another advantage to a 529 plan is the ability to transfer it into a 529 ABLE account. ABLE accounts were designed to be tax advantaged accounts for loved ones with disabilities. Those assets can be used for more than just education and can be used for medical treatments, job training, and technology, as well as housing. The big advantage of 529 ABLE plans is that the initial $100,000 invested is not treated as the beneficiaries' personal asset, which if it was would restrict eligibility for Medicaid, and other much needed financial benefits.
Though not much has changed in regard to college planning, the new options and versatility of the 529 plan is something to know and talk about.