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529 ELIGIBLE EXPENSES FEES PLUS

Accounts can be set up for students under the age of 18. Coverdell Education Savings AccountĬoverdell Education Savings Accounts were one of the main ways of saving tax-free for K-12 education before 529 plans could be used for private school education. If you’d like to save for your student’s K-12 tuition separately from their college savings, consider a Coverdell Education Savings Account, a traditional savings account or an individual retirement account (IRA). Check your state’s rules on whether penalty-free withdrawals can be made for K-12 tuition. While 529 plans can technically be used for K-12 tuition, not all states allow 529 plans to be used for K-12 education, says Patricia Roberts, chief operations officer for Gift of College, a gift registry website for college savings accounts.

Not all states allow penalty-free 529 plan withdrawals for K-12 education.

If you are able to save more than $10,000 a year, you won’t get a state tax deduction on those additional contributions. Jointly filed tax returns allow for a $10,000 deduction. For instance, New York allows a tax deduction of $5,000 per taxpayer contributing per beneficiary. The maximum you can contribute to a 529 plan and still get state income tax benefits varies.

State income tax deductions or credits generally have contribution limits.

If using the money for K-12 tuition, let the gifter know that’s how the money will be allocated. Since funds from 529 plans can be used for much more than saving for college, relatives and friends who have made contributions for years may get confused on what their money may be used for.

Allocating gifting gets more complicated.

Don’t count on scholarships because of athletics or education from a specific school. Take time to consider how much you really want to pay for both your child’s K-12 schooling and college education. When elementary, middle and high school is in the same money pot as higher education, it may prevent families from saving enough for college.

It could make saving for college harder.

Textbooks and required supplies are qualifying education expenses for higher education withdrawals.

529 ELIGIBLE EXPENSES FEES PLUS

The distribution limit takes into account all accounts for the student.For instance, if a grandparent, an aunt or uncle and a parent each open 529 plans for the student, they should coordinate so someone doesn’t end up with the 10% penalty plus taxes on earnings on withdrawals. According to the IRS, you can pay for tuition and fees up to $10,000 in “elementary or secondary (K-12) public, private or religious school of the beneficiary’s choosing.” Beneficiaries are assigned by the owner of 529 plan accounts as the person whose education will be paid for from this account. There are fewer qualifying expenses for K-12 education.If your state income tax rate is 5% and you contribute $4,000 that you withdraw the same year, you could save $200 on your taxes. You could deposit the money and withdraw it later in the year if needed. Depending on your state, you may get an income tax deduction or credit for contributions to a 529 plan. It can be a great short-term savings strategy if your child is going to private school anyway.It can be easier to request direct gift contributions for 529 plans than for other types of investment accounts. 529 plans have gifting options, websites and other resources for asking friends and family members to contribute to your student’s education. You have a variety of gifting options for K-12 tuition.You can save more in a 529 plan account on an annual basis than a Coverdell Savings Account, for instance, which also can be used for qualified education expenses at all levels of education. Your education savings account is versatile and virtually limitless.No matter what state you live in, you won’t pay taxes on growth from earnings on your investments and savings if you use the money for qualified education expenses. Pros and Cons Pros of Using 529 Plans for K-12 Tuition You also could end up with state taxes as a recapture for state tax deductions on contributions. You would likely incur a tax penalty and federal income tax for any amount withdrawn for K-12 textbooks or other expenses beyond tuition.

On the state level, your state may give you an income tax deduction or a credit on contributions. On the federal level, your account grows tax-free. There are no differences in what is required to contribute to 529 plans for K-12 or college costs.