Contribute to a child’s education on 529 Day

National 529 Day on May 29 (of course) is a reminder of the importance of saving for college and the potential benefits of a 529 college savings plan. Make a difference in a child’s life — your children or a grandchild, niece, nephew, or family friend — by opening or contributing to one. Here’s why it’s a good idea.

College is expensive; loans add to the cost

Tuition and fees are expected to increase by 3%-5% annually. For example, for a child born in 2020, the cost of four years at a private college could rise to $484,808 in 2038 — the year they would start college.¹ That’s more than double the $219,520 cost of a private four-year education in 2020. Plus, the more saving, the fewer loans the student will probably need, which could ultimately lower the cost of college because it can help avoid costly interest payments.

Tax benefits

Contributing to a 529 plan can also help you reduce state income taxes. Thirty-four states and the District of Columbia currently offer a state income tax deduction or tax credit for contributions to a 529 plan. (Contributions are not federally tax deductible.) In most states that offer tax benefits, anyone who contributes to a 529 plan can get a state income tax deduction. In 10 states, however, only the plan account owner can claim a tax benefit. See your state tax benefits.

Any earnings in a 529 college savings plan grow tax-free, which gives more of the money the opportunity to grow. Withdrawals are federal and state tax-free as long as the money is used for qualified education expenses, such as tuition, room, board, books, and supplies for post-high school education. Up to $10,000 per year can be withdrawn tax-free to pay for tuition for grades K-12 for public, private, and religious schools.²

The power of compounding

Growth on growth. That’s called compounding, and you can take advantage of this growth potential by contributing to a 529 plan when a child is young. That gives more time for the money to compound. Contributions to a 529 plan can add up over time. For instance, by the time a student reaches age 18, a $50 monthly contribution could grow to more than $19,000. Contributing $500 a month for 18 years could grow to more than $191,000.³

Not just for college tuition

Money in a 529 plan can be used for tuition, but also fees, textbooks, laptops, school supplies, room and board, and other educational expenses for college, vocational and technical college programs, study abroad programs, and postgraduate education such as master’s degrees, doctorates, law school, medical, and dental school. Up to $10,000 can be used for elementary, middle school, and high school tuition for public, private, and religious schools.

How to contribute to a 529 plan

Anyone 18 years and older can open a 529 plan. There’s no age limit for a beneficiary of a plan, which means you can save for graduate school or a college education later in life.

Consider these ways to a 529 plan:

• Accelerated gifting: A special provision allows a person to make five years of contributions (the current year plus four future years) in a single year.⁴ The annual gift amount is $17,000 in 2023, so a person can contribute $85,000 and a married couple $170,000. A person can gift to as many people as they want in a year, so you can superfund a 529 college savings plan for as many children as you want.
• Automatic contributions: (also known as recurring contributions) Set up regular contributions from a bank or investment account.
• Payroll contributions: Some companies allow contributions directly from your paycheck to your 529 plan. Check with your HR representative.  
• Relatives and friends: They can easily contribute to an existing 529 plan using Ugift.
  
  

Learn more about saving for college. If you need help or have questions, contact your financial professional. See how to open a CollegeBound 529 Plan.