How much of 529 is tax deductible?
You’ll enjoy a deduction of up to $10,000 per year ($20,000 if married and filing jointly) and you pay no state income tax on earnings and withdrawals that are used for qualified college expenses1. You can also deduct the contribution portion (but not earnings) of rollovers from other state 529 plans.
How does the Secure Act affect 529 plans?
The new law approves the use of account funds for the repayment of qualified education loans—including amounts paid as principal or interest—for the beneficiary or a sibling of the beneficiary. A beneficiary can use no more than $10,000 in withdrawals from all 529 accounts to pay down qualified education loans.
Can parents use 529 for themselves?
As long as the new beneficiary is a family member—a sibling, first cousin, grandparent, aunt, uncle, or even yourself—the money can be used for qualified education expenses without incurring income taxes or penalties.
How much is too much in 529?
These estimates vary by state with per-beneficiary caps ranging from $235,000 to $520,000. However, it is valuable to keep in mind a few important subtleties of these state-imposed limits: There are no penalties or extra taxes if a 529 Plan balance exceeds the state imposed limit because of investment growth.
How can I avoid paying taxes on 529 withdrawals?
1. Taking too much money. 529 withdrawals are tax-free to the extent your child (or other account beneficiary) incurs qualified education expenses (QHEE) during the year. If you withdraw more than the QHEE, the excess is a non-qualified distribution.
What happens to money in 529 if child dies?
You’ll have to look to the rules of your plan. Generally, though, the account owner retains control of the account if the beneficiary dies. The account owner may be able to name a new beneficiary (which may create gift tax or estate tax consequences). Or the account owner might make a withdrawal from the account.
What is the average return on a 529 plan?
In 2011, people thought a rate of return around 3% for a 529 plan was amazing. Since 2011, the S&P’s compounded annual growth rate (CAGR) is ~12% from June 2011 to June 2020. That is a lot more tax-free growth than the 3% account owners got back in 2011.