Schools across the nation are getting back to business in the coming days and weeks. For parents, grandparents, and guardians, “back to school” often includes an outlay of cash. There are computers to upgrade, after-school activities to fund, and college planning to consider.
Although, it's not just kids who are going back to school. Many people choose to pursue adult education. Learning new skills, auditing classes or even getting degrees can be gratifying. In fact, a growing number of studies indicate that people who further their education, learn a new language or musical instrument - or maintain a network of relationships with family and friends - tend to experience lower rates of dementia and cognitive reasoning problems later in life.1
A commitment to lifetime learning can help you:
While paying for school and related things can be expensive, education savings plans can help. A 529 plan allows you to save for education expenses for a designated beneficiary. Anyone—whether they’re a family member or friend—can establish a 529 plan for a beneficiary. Some of my clients open 529 plans right after each grandchild is born. Not only is it a benefit to the beneficiary, but the person who funds the 529 may receive a tax deduction depending on the state where the plan is purchased. Money invested in the plan accumulates on a tax-deferred basis, which means that the growth is not taxed. Distributions used for higher education expenses are tax and penalty-free as long as the funds are used for approved education expenses. Saving via a 529 can be a win on many levels.
New IRS rules were recently implemented regarding 529's and their ability to be transferred to Roth IRA accounts. I'd be happy to discuss this with you if you have a 529 plan for someone who doesn't anticipate using all of the funds. Of course, you can use a 529 at any age - including in retirement - and the designated beneficiary can be changed if the original person doesn't want to use the funds.
You might also be able to take advantage of the Lifetime Learning Credit, which is a tax credit to help pay for undergraduate, graduate, and professional degree courses. While there’s no limit on the number of years you can claim this tax credit, there are limits based on adjusted gross income (MAGI). If your income is too high, you may still qualify for a partial credit.2
If you have questions, reach out anytime. I'm always glad to help!
Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan.
This letter is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax and accounting professionals before modifying your tax strategy in response to the White House actions.