Save and Pay for Educational Expenses With a 529 Educational Trust
The 529 educational trust has been a popular way for parents to save for their child’s future educational expenses, mainly college tuition. Now it can be used to pay for primary education to private schools offering a tax-free withdrawal advantage that can really add up in total cost savings. Though not all states have adopted the new law, if you live in one that does, you can benefit from these perks.
Build It up Over Time
For a child in private school and who is currently a junior or senior, it’s likely not worth it to create a 529 educational trust for non-college expenses. This is because it needs time to build up significantly to get a decent return. In addition, if parents need to tap into the account, they will face a 10% penalty and have to pay taxes on the amount withdrawn. It’s better to start a 529 trust early on because it’ll be easier to plan out whether the money should be used toward private school tuition or to assist with college costs.
Still Good for College Savings
Parents prefer to choose a 529 over a standard trust because it doesn’t affect financial aid eligibility amounts as much. Typically, it only reduces financial aid awards by a maximum of 5.64%. Because most parents start some form of savings when their children are small, a 529 educational trust can help with private middle school tuition but may be a better cost advantage for university tuition after graduating high school.
Switching Funds to Another Child
Have more than one child? If so make them both beneficiaries of a 529 educational trust. For example, if one child goes to community college or has a full-ride scholarship, you really won’t need the full amount of the 529. In this case, the balance remaining for one child can be transferred to another child/beneficiary without strict penalties. An exception is, if there is no other beneficiary and the child gets a full scholarship that covers tuition. In this situation, there will be no tax penalty instituted.
What Is Not Covered?
For college students, tuition, room and board, and textbooks are all generally allowable expenses. Computers and tablets are also included. For private education students in middle and high school, these supplies are not covered. The trust only covers only up to $10,000 in tuition each year.
The biggest advantages to having a 529 educational trust are the state and federal tax breaks as opposed to other types of savings accounts. For parents with kids in private school who would benefit from this type of trust, every little bit helps.
~Here’s to Your Financial Health!
