529 College Savings Plan – Redux
One of the best savings vehicles for education has become the 529 college savings plan. This tax advantaged account was designed to allow participants to contribute to a college savings plan with after tax dollars (federal) and pre-tax dollars (most states), yet allow the funds to be withdrawn – tax free – at a later point in time. Done right, the tax advantages are outstanding.
Imagine if you started contributing 10,000 a year to a child’s college savings account at age 0 until they were 18. If your return was 7.8% per year (about the rate of growth of the S&P 500 index from 2006 to 2016 – which includes the big stock market losses of the mortgage crisis in 2007 and 2008) then that $10,000 becomes $38,008. If you do the same thing at the age of one, the amount is $35,291. In other words, add the two together and you have the full cost of a year at Harvard, in today’s dollars, plus a bit more if you start early.
But what if you don’t want to use the funds to go to Harvard, or even for a college-degree for that matter? Then your choices become much narrower. Technical school yes, you could get a certification as a HVAC technician, paralegal, electrician, etc. But what about public or private high school or elementary school? Nope. Until now. The Senate version of the new-tax-bill fixes that for the 529 plan…
Under the new form 529 tax deduction, primary school costs will be an allowed use of funds. This is an important distinction because approximately 60% of the citizens in this country do not have a college degree, which means that that the 529 college saving plan tax deduction was not available to the majority of Americans.
There are a lot of reasons for this, but the most prevalent is that the cost of a college degree is out of reach for many adults. Other reasons include a desire to become an entrepreneur, a view that the time commitment v the payoff is too great, etc. The fact of the matter is, college isn’t right for everyone and the 529 plan didn’t help t -he majority of people, until now.
We at Deductions.TAX are very much in favor of including all education costs, not just college education, in the 529 program. We feel that this allows more freedom of choice for those that would not choose college to gain the skills needed to navigate life. After all, Bill Gates, Steve Jobs and Harrison Ford never graduated from college and they did just fine. Watch this space for more on this as it evolves…