Advantages of a 529 Plan in 2021
By: Stacey Nickens
The education landscape has changed significantly in the past decade, especially during the past year. Students have greater technological needs, especially with many students moving to a remote learning environment. Many families and students have to take on debt to cover educational expenses, and with the unemployment rate at 6%, families may be struggling to pay off student debt. Similarly, younger and older people alike may be seeking out continuing education courses to make themselves more competitive in today’s job market.
With the education landscape changing so quickly, it can be challenging to build a college savings plan for your child or grandchild. What if your student needs learning materials not covered by your current college savings plan? What if your child chooses an alterative educational route, rather than going to college? What if you end up needing those college savings for yourself?
Luckily, you don’t need to know the answer to all of these questions in order to begin saving for college. A 529 Plan offers three main benefits that may appeal to savers seeking flexibility.
529 Plans can be used to cover remote learning expenses.
You may already know that you can use 529 Plan distributions to cover the cost of tuition and books. However, you may not realize that qualified distributions from a 529 Plan can also cover educational tools needed for remote learning. These tools could include computers, scanners, webcams, digital cameras, and even internet access. The IRS considers the purchase a qualified expense as long as the 529 Plan’s beneficiary is the primary recipient of the purchase and is enrolled in an eligible institution. Moreover, the purchase must be used for the beneficiary’s education. Accordingly, you can begin saving in a 529 Plan knowing that the funds could be used for a variety of needs, including for expenses incurred in either in-person or remote learning.
529 Plans can be used to pay off college debt and cover apprenticeship programs.
Former President Trump’s SECURE Act made a number of changes to 529 Plans. One such change allows borrowers to pay off up to $10,000 of their qualified student loans using a 529 Plan in their name. This means you could start saving in a 529 Plan today, allow those savings to grow tax-free, and then make tax-free withdrawals to pay off college loans.
Moreover, some students choose not to attend college and instead attend an apprenticeship program. The SECURE Act allows for 529 Plans to be used to cover certain apprenticeship program expenses. Some of these qualified expenses include fees, books, supplies, and equipment, as long as the apprenticeship is certified by the Department of Labor.
You can switch a 529 Plan’s beneficiary. Sometimes, a plan’s beneficiary doesn’t need the savings. Perhaps they choose to go straight into the workforce. Perhaps scholarships or other funds are covering their education. Either way, you may be interested in changing a 529 Plan’s beneficiary.
You can change a 529 Plan’s beneficiary as long as the new beneficiary is a qualified family member of the original beneficiary. Qualified family members include siblings, parents, children, first cousins, nieces, and nephews. In this way, you could also name yourself as the beneficiary of a 529 Plan if you’re interested in going back to school or furthering your education.
With these benefits in mind, consider opening a 529 Plan. Saving for your child or grandchild’s education can feel like a large task. However, you can make small contributions to a 529 Plan or UTMA, which will slowly accumulate. Even if you don’t use the funds in the manner for which your originally planned, the flexibility of a 529 Plan can still make it a worthwhile savings vehicle.