By M Katie Helle, CPA –
Many new parents are bombarded with added financial expenses as they welcome a child to their family. The last thing new parents think about is their child’s future education. In reality, this should be something they consider thinking about while their children are young. This is where a 529 Plan comes into play. A 529 Plan is a tax-free investment tool used to pay for primary or secondary education. These plans are typically established when a child is young so parents or even grandparents can contribute money for the future education of the beneficiary.
Aside from the tax-free growth, a 529 Plan can offer additional benefits other investment saving tools do not offer. Although these plans are not tax deductible on the federal level, many states offer a deduction for contributions up to a certain amount which can help to reduce your tax liability to the state. Arizona offers up to a $4,000 deduction for contributions to a 529 Plan for married filing jointly taxpayers.
Unlike custodial accounts, 529 Plans stay in the control of the owner and do no switch over to the beneficiary at any point in time. This means the owner of the account controls when withdrawals can occur. Furthermore, 529 Plan accounts are low maintenance meaning they are a very hands-off kind of investment. You can simply invest your money and forget about it so to say.
No matter the age of your children or grandchildren, it’s never too late to save for education especially with all of the benefits these accounts can offer. For more information about 529 Plans you can visit the Arizona Commission for Post secondary Education here.