In the list of ‘to do’ items after childbirth and child rearing, parents often include the 529
Education plans as well. You want to secure your child’s future by investing in this piggy bank
for the education of your children. Megan and Derrick, first time parents, did not want to waste
much time, so they invested in 529 Education plan within a month of their child’s birth.

The 529 Education plans have been around since 1996. It is named after Internal Revenue Code
(IRC) section 529 and is officially known as a “Qualified Tuition Program”. This is an education
vehicle that supports money to be set aside and/or invested and later used for someone (usually a
child) to be able to attend school, and have the education paid for.

The BIG benefit is that the earnings or income is NOT subject to tax, if the money taken from
the 529 plan is used for education purposes.

Each state can offer either a Prepaid Tuition Plan or a Savings Plan. Moreover, you do not need
to buy a plan in the state you live in. For instance, you can choose to buy a 529 Savings Plan in
Utah, while you are living in Arizona.

But beware if you buy the 529 Prepaid Tuition Plan, because in that case you must go to
the state schools! Also, with Prepaid Tuition plans you usually don’t even earn as much on the
529 Prepaid Tuition Plan, as you do with the 529 Savings Plan.

You can own the 529 plan, but set it up for your children, grandchildren or relatives, friends or
even yourself. There is an Owner or Custodian and one beneficiary, per plan. The beneficiary
can be changed without any problem, too. So, if your child, that was chosen to receive help from
the 529 plan, decides not to go to college, you can choose someone else (anyone). You can even
roll money from one 529 plan into a 529 plan of another person, without restrictions. There are
no limits on who can set up 529 plans, nor is there a limit on how many 529 plans you can own.

How does it work?
You set up a 529 plan and fund it with money.

How much?
There are certain limits, (be sure to see your tax professional) but let’s say for now, at least $250
and up to $110,000 in one year. Whatever that account earns while it sits there, is tax deferred
AND completely tax free when the money is used for eligible education purposes. So, remember,
it’s easy to set up a 529 plan, anyone can do it, and make sure you have enough TIME to keep it
invested, before you use any of it, for education. As with all investing, the more time you must
wait, the more you usually gain from investments.

The types of Educational Institutions that qualify to be used with 529 plans are:

Any school, public, private, or faith-based (1st grade through 12th grade)

OR

Any college, university, apprenticeship, vocational, trade school, or primary, secondary and post-
secondary institution can participate in a student aid program administered by the Department of
Education.

To get tax free treatment of 529 withdrawals, you must spend the money on Eligible Education
Purposes. Examples of this are: tuition, resource fees, books, supplies, registration fees,
computers, technology, hardware, software or related equipment, even internet services, room
and board. Primary and secondary schools have annual limits on both the amount spent ($10,000
for 2022), while there are no limits placed on expenses paid to post-secondary education
institutions. As of 2023, you can now use 529 withdrawals to repay student loans and
interest, up to $10,000 as well.

Another possible benefit for 529 plans is that many states offer tax deductions for contributions
made to 529 plans, like Arizona offers a $4000 (married couple-2023) deduction as a state tax
deduction for that much contributed to a 529 plan!

Be sure to check with Azmoneyguy or another tax professional for current limits.

2024 Now offers NEW rollover opportunities with Unused 529 balances.

As of 2024, you may be able to rollover an unused 529 plan balance as long as:

1. The ROTH IRA opened, must be in the name of the beneficiary who the 529 was set up for
AND

2. The 529 plan must have been opened for at least 15 years AND

3. Maximum lifetime rollover, per beneficiary, is $35,000 AND

4. You can’t rollover any contributions made in the last five (5) years AND
5. The beneficiary named must have earned income AND

6. The rollover amount must be a trustee-to-trustee transfer. This means you never see the check
when rolled over because it went from one IRA manager to another, directly.

Look out for “the catch.”
As with most tax deferred programs there is a catch. For instance, if you take money out of a 529
plan that is NOT used for education, there is a tax on the earnings amount withdrawn AND a
10% penalty. So be sure to see your tax professional before taking any withdrawals.

Here are some points to remember:

• 529 plans are either Prepaid Tuition plans or Savings plans.
• Anyone can set up a 529 plan for anyone, including yourself.
• 529 plans are available for primary, secondary, religious, post-secondary, apprenticeship,
  vocational and trade school educational institutions.
• 529 withdrawals can now be used to repay student loans.
• The longer you wait to withdraw funds, the more opportunity to grow the plan.
• Earnings are tax deferred AND tax free, if used for Eligible Education Purposes
• Eligible Education Purposes include almost everything, but amounts are limited for primary
  and secondary schools.
• Check with your state to see if there are deductions for 529 contributions.
• Watch out for tax AND 10% penalty if non-qualified withdrawals are taken.
• Watch out for tax AND 10% penalty if non-qualified withdrawals are taken.

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

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