529 plans at a glance
What is a 529 plan? Who can open one and how can you use it? Here is the basic information you need to know about the features and benefits of a 529 plan.
|What is a 529 plan?
A program that:
- Helps families save today for tomorrow's higher education
- Offers tax advantages that can help money go further
- Gives the account owner control over the account - how and when your assets are used
- Is usually sponsored by a state, but is not limited to residents of that state (IDeal is sponsored by the State of Idaho)
|What tax benefits does it offer?
- Earnings grow tax deferred, so money has the opportunity to work harder
- Qualified withdrawals are tax free1
- Some offer state-specific tax benefits: Idaho taxpayers can claim a state income tax deduction of up to $4,000 ($8,000 if married, filing jointly) of their IDeal contributions2
|What can it be used for?
Qualified withdrawals are those used for qualified higher education expenses,1 including:
- Required fees
- Required books and equipment
- Certain room and board costs
|Where can it be used?
Any eligible higher education institution around the country, including3:
- 2- or 4-year colleges and universities
- Graduate schools (including law and medical schools)
- Vocational/technical schools
- Qualified career retraining schools
- Dual Credit courses
|Who can open a 529 plan account?
- There is no income limit and no maximum age limit
- Any U.S. citizen or resident alien, age 18+, with a permanent U.S. address (not a P.O. Box number)
- Parents of a beneficiary, grandparents, other family members, or friends
- An adult learner or GED graduate, for their own continuing education or retraining
|Who can be a beneficiary?
- Anyone with a Social Security number or Tax Identification number, who is a U.S. citizen or a resident alien
How do I use a 529 plan?
Here are five easy steps to start you on the path to saving for higher education with a 529 plan account.
|Step 1: Open
- Open an account after reading about the plan's features and benefits
- You'll be asked to choose
- A beneficiary (the future student)
- How you'll be contributing
- How you'd like your money to be invested (see below)
|Step 2: Choose
- Choose an investment that is appropriate for you:
- Age-based investments, which automatically grow more conservative over time
- Individual portfolios that represent various investments in stocks, bonds, and money
- Savings Portfolio which is a lower-risk, Federal Deposit Insurance Corporation (FDIC)-insured option for account owners seeking a conservative investment choice for their college savings. It is managed by Sallie Mae Bank.
|Step 3: Save
|Step 4: Manage your account
- There are a number of transactions and changes that you can make right from your home computer
- Required log-in ensures account security
|Step 5: Pay for school
- Use your account's assets at any eligible institution of higher education: 2- or 4-year colleges, technical/vocational schools, graduate school, or qualified career re-training1
- Pay for tuition, fees, and certain equipment and room and board expenses
- When your beneficiary is ready, withdraw the money (Note: If you need to withdraw the money for some other use, you will incur income tax and a federal penalty tax1)
1 Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.
2 Contributions to the IDeal - Idaho College Savings Program are deductible from Idaho state income tax, subject to recapture in certain circumstances, such as a non-qualified withdrawal or a rollover to another state's qualified tuition program in the year of the rollover and the prior tax year.
3 An eligible institution is one that is eligible for federal financial aid programs.
4 A plan of regular investment cannot assure a profit or protect against a loss in a declining market.