With classes being cancelled and student life being disrupted like never before due to the Coronavirus pandemic, it may be hard to think about the future and going off to college, but at some point this will pass and attending colleges will resume.
To prepare for when things return to normal, it’s still important to realize that a 529 savings plan is a great way for you to start squirreling away money for your children’s future student loans. 529 savings plans also come with some significant tax breaks, too. Many people have used 529 plans effectively for years to take advantage of the tax savings they offer. In fact, the new Secure Act law passed in late 2019 includes some surprising new advantages of using 529 plans.
Previously, 529 savings plans allowed parents to save money to use for college and withdraw those funds as needed to pay tuition costs and other select expenses without incurring tax penalties. The newest changes to 529 savings plans increase the range of uses for 529 plans without diminishing the tax advantages these plans offer.
The Chicago Tribune reports:
“Under the new rules, up to $10,000 from a 529 account can be used to repay the beneficiary’s student loans. Plus, up to another $10,000 each can be used to repay student loans held by the beneficiary’s siblings. The new law also allows 529 funds to be used to pay for apprenticeships, which typically combine on-the-job training with classroom instruction, often at a community college. To qualify, the apprenticeship must be registered with the federal Labor Department.”
What Do These Changes Mean?
These new changes provide families with even greater flexibility when it comes to saving for college while also removing some previous restrictions on 529 plans. Ultimately, these changes offer families more options when it comes to spending the funds from their 529 savings plans without incurring penalties. For example, it’s now possible to withdraw up to $10,000 per year per student for pre-college tuition costs, from kindergarten through high school.
The addition of eligibility for apprenticeships also provides youths with more flexibility. Prior to this change, a student whose parents had a 529 plan may feel compelled to go to college to use those funds as their parents expected, regardless of the student’s personal goals and aspirations. Now, students who opt for apprenticeships and trade school enrollment can use 529 plan funds without penalty, preserving the tax benefits these plans offer.
Reducing the Burden of Student Loans
Another new perk added to 529 plans as of December of 2019 is the ability to use 529 plan funds to repay student loans. Americans currently owe a collective $1.5 trillion in student loans, and the new flexibility added to 529 plans could help decrease the burden of student loan repayment on many aspiring students.
Student loans are currently the second-largest debt category behind mortgage debt in the US. More Americans than ever are looking for more affordable and tax-advantageous ways to pay for college in light of the growing student debt crisis, and 529 plans could be the answer for many of these families.
The College Benefits Research Group exists to assist American families in saving for and paying for college. We provide various support services including financial aid recommendations, application guidance, and much more. We can help you clarify the often-confusing world of college savings, tuition, and other family needs when it comes to higher education. Contact CBRG today for more information about 529 plans and how the new changes could be beneficial to your family.