The time has come — that time of the year when a good number of us get back to writing checks for college, or even private school tuition.
If you’re considering how you can be better prepared to make tuition payments for a child, another relative, or even for your own studies at some point, a 529 savings account is often an excellent option.
529s differ from a regular savings account because earnings accumulate in a 529 plan on a tax-deferred basis. Qualified distributions from a 529 plan are entirely tax-free.
A 529 can be set up for you through a variety of different custodians and providers. The most common one we talk about here in Wisconsin is Edvest.
Edvest allows individuals to open an account on behalf of a designated beneficiary. All contributions are placed into a trust fund established by the state of Wisconsin, which is then directed into special investment portfolios designated and managed specifically for the program.
Edvest’s earnings will grow federal and state tax-free in Wisconsin, as well as potentially tax-free in other states, until the account’s beneficiary is college-bound. 529 funds can then be used to pay for qualifying higher expenses at any eligible school — including two- and four-year colleges, technical, vocation and proprietary schools. When it comes to K-12 schools, up to $10,000 annually can be used for tuition from 529 plans.
In 2019, contributions to a 529 made by any Wisconsin adult who is married filing jointly can reduce their state-taxable income, dollar-for-dollar, up to $3,280 per beneficiary per year. For divorced adults or those filing singly, the deduction drops to $1,640 per beneficiary per year. The contribution may be made to an existing account you own, another Wisconsin account or to a new one.
If you’re worried about over-contributing to a 529 account, you can always change the beneficiary at a later point. For example, if one child receives a scholarship and won’t need as much in funds for school, you can transfer any excess from his or her 529 account to another individual’s 529 plan.
529s are a great way to plan for future education expenses. If you’d like to learn more about a 529 plan or set up your own, visit 529.wi.gov, or find an adviser you can trust and your personal tax adviser to lend a hand.
Patty Tobin, CFP, is a wealth manager at Annex Wealth Management’s Middleton office.
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