Tuesday, May 10, 2016

What is a 529 Plan?

What is a 529 Plan?
  • A tax-advantaged account where you can put after-tax money into and it grows tax-free. The money can then be withdrawn tax-free for higher education qualified expenses.
  • Higher education is undergrad college and graduate school. It is NOT high school.
  • Examples of higher education qualified expenses are tuition, room and board ON campus, COMPARABLE off-campus housing, REQUIRED books and supplies, computer, and internet access.
  • Examples of *NON* higher education qualified expenses are clubs fees/dues, fraternity/sorority fees/dues, etc.
  • Since the money you put in (your contributions) is AFTER-TAX you can withdraw your contributions (principal) at any time without PENALTY. You will owe taxes on a pro-rata basis however. Additionally, if you took a state tax deduction on your contributions going in then naturally that state may want that deduction back.
  • If you withdraw the money for a NON higher education qualified expense you will pay a 10% penalty PLUS federal/state taxes on EARNINGS (the growth on your contributions).

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