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Honest to Goodness about 529 Plans

Kids aren’t expensive.

Whoever said that probably never looked at the price of college tuition. According to the College Board, “the average cost of tuition and fees for the 2017–2018 school year was $34,740 at private colleges, $9,970 for state residents at public colleges, and $25,620 for out-of-state residents attending public universities.” That, of course, leaves parents looking to provide their children with brighter futures with One. Burning. Question. 

How the heck can I afford it?

There is, however, a solution that’s helped many parents finance the cost of education – without sacrificing their own financial security or equity in their homes. It’s a 529 plan. Now, if you’re not a financial guru or haven’t looked into college planning, you may be pondering another question:

What the even is a 529 plan?

Here to answer that is our resident tax and accounting expert, CPA, Angela Morrison.

Real Smarts: Angela, what exactly is a 529 plan in plain words that the average person can understand?

Angela: A 529 plan is a tax-advantaged savings plan for your children’s education costs.  I often tell people to think of it as a retirement plan, but the funds are used for your children’s education costs instead of your retirement.

Real Smarts: What are the advantages of having one?

Angela: Besides minimizing the amount of student loans your child will need to take out, one of the best advantages is tax-free or tax-deferred growth. This means the contributions grow free of federal and state income taxes while in the account. In addition, the withdrawals from the plan are also tax free if the funds are used for qualified expenses.  Also, some states allow a tax deduction for your contributions into a plan. For example, Massachusetts allows up to a $1,000 deduction for MA state plans for single filers, and a $2,000 deduction for married filers.  Grandparents often fund 529 plans for their grandchildren to reduce their personal taxable estate through accelerated gifting, which is unique to 529 plans.

Real Smarts: Can you use it for something other than college tuition? For example, can you pay for trade school or private high school education?

Angela: Yes. With a 529 college savings plan you can use the funds for fees, books, computers, as well as room and board at an eligible education institution.  Trump’s tax reform expanded the qualified education expenses for elementary or secondary public, private, or religious schools. You are now allowed to withdraw up to $10,000 per year per beneficiary for that level of education. For 529 prepaid tuition plans, you can use the funds for fees, books, and computers. 

Real Smarts: Does your child have to go to a certain college?

Angela: Only if your 529 plan is a prepaid tuition plan. For prepaid tuition plans the child must attend an in-state college in order to receive the full benefit of the plan. For 529 college savings plans, there are no limitations on where the child can go.

Real Smarts: What if my child doesn’t go to college? What happens to the money?

Angela: If your child decided not to go to college, you can roll their 529 plan into one of your other children’s accounts.  If none of your children go to college or you have excess funds, the earnings portion of non-qualified 529 withdrawals is subject to federal and state income taxes and a 10% federal penalty. Your basis in the plan (contributions) are not subject to income taxes or penalties.

Real Smarts: Thank you Angela that was so very helpful, which brings up another important question:

How the heck can we find you if we want tax advice or planning?

Angela: You can call me at 781-778-7139 or email me at