So Long Sweet Summer: As the School Year Begins, Here Are Three Things You Should Know About 529 Pla


No matter a child’s age, the COVID-19 pandemic has made school a stressful and sensitive subject for teachers, students, and parents. Although navigating remote and hybrid learning—or sending your child back to school full-time—is challenging right now, parents should also be thinking about saving for their child’s college—no matter how far off that may be. Fortunately, if you’re a parent, a 529 plan, which is a tax-advantaged college savings account, can be a smart and strategic way for you to save for your child’s future. Our financial planning specialists here at Creative Financial Planning are sharing three things you should know about 529 plans, as well as how to invest in—and utilize—them during the pandemic.

Invest Early, and If You Can, Keep Investing Now Watching your 3-year-old play with spaghetti sauce or your nine-year-old play with slime may make it difficult for you to think about their college education right now, but the truth is that it’s never too early to start saving for it. Like any other savings account, the sooner you start investing, the more interest you’ll accrue. Plus, money invested in a 529 account grows tax-deferred and can be withdrawn

for qualified expenses (IE school tuition, fees, books, and supplies) tax-free. If you’re a parent who’s paused investing in a 529 plan because of the pandemic, that’s okay—just try to avoid using these funds for non-qualified education expenses. However, when your child’s birthday or holiday rolls around, you may want to consider asking family members and friends to make a contribution to their 529 in place of a gift.

Remember, It Can Be Used in Other Ways in the Future If the COVID-19 pandemic has taught us anything, it’s that life is unpredictable. Fortunately, if the child whom you opened the 529 account for decides to take a gap year or forgo a college education, you can transfer the account to another beneficiary. In fact, you can transfer the account—without a tax penalty—to another child of yours, yourself (should you choose to go back to school), or even your future grandchild. Plus, money in a 529 account can also be used for the following qualified education expenses:

  • Public, private, or religious school enrollment for kids in kindergarten through 12th grade (up to $10,000 can be withdrawn tax-free)

  • Apprenticeship programs

  • Vocational training

  • Up to $10,000 in qualified student loans

Try to Avoid Using These Funds for Emergencies While there are a variety of qualified education expenses you can pay for with your 529 funds (tax free), you’re also able to withdraw money from this type of account for other reasons. However, it’s important to note that doing this will result in a 10% penalty fee and federal income tax. Because of this, if you need to dip into savings accounts for whatever reason, you may want to contact a financial planner that can help you choose the best account(s) to withdraw from.

Now that you have some newfound knowledge about 529 plans, let the financial planning specialists here at Creative Financial Planning help you navigate yours! Contact us today to schedule a complimentary consultation.

The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.

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