The coronavirus upended the lives of many college students who had to return home to learn remotely in order to try to slow the spread of the virus. At the same time, many students and their parents lost jobs or had wages reduced as part of the virus’s economic fallout, impacting the ability to save and pay for college.
But you may not realize that one of the lesser-known uses of 529 plans is helping families retool skill sets in midcareer training, career acceleration and time away from the job market.
The two main benefits of 529 plans are that they provide tax-free growth and tax-free withdrawals for qualified education expenses — tuition, room, board, fees and books. But the money also can be used to upgrade technology — computers, laptops, printers, internet service and some software. All of these have become essential for the online classes many college students are taking.
As you rethink your job prospects and look to overhaul skill sets, your student(s) and even you as a parent can use 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 the U.S. Department of Labor.
So these days, think of a 529 plan as a career emergency fund that offers job protection or job acceleration, since higher levels of education are correlated with higher levels of income and lower levels of unemployment. Such plans can be used not only for you and for your children, but even for the next generation — they’re becoming more of a family topic — and not just for parents and grandparents but aunts and uncles, too.
And if you’re struggling with debt, you can pay off up to $10,000 a year in qualified student loans with 529 funds. Or you can use the money in your account to pay up to $10,000 a year for tuition for your child’s private school. (There are some limitations here, however, so check carefully before taking a distribution.)
But consider that from a tax and investment perspective, staying the course — starting early and staying invested — is the most optimized way to use 529 accounts. These tax-advantaged investment accounts offer various options to get more money for college.
You can still see 529 plans as ways to accumulate money and withdraw it tax-free for education-related expenses by taking advantage of the two types of 529s: There are prepaid tuition plans and college savings plans, with dozens of individual options, varying in terms of requirements and eligibility.
Evaluating your state’s plan is a good first step. You may be eligible for additional state tax benefits — some states even offer a matching program.
The flexibility of 529 plans makes them especially useful: For example, if a child doesn’t need the full amount thanks to scholarships, it may be possible to transfer the funds to a sibling or another relative.
Work with a financial professional to see how a 529 plan can help with your plans.
You can count on Ericson, Scalise & Mangan, PC to provide you with sound guidance and experience in these uncertain times. For assistance with your legal needs, please contact us today at (860) 229-0369, or email us at email@example.com.