You don’t even need to mention it to the IRS on your federal taxes.
Contribution options include online payments, checks, money orders, income tax refunds, payroll, bank transfers and rollover funds from other accounts.
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What Is a 529 Savings Plan?
Get the rundown on Utah’s 529 plan for college savings, find out how rewards programs like Upromise can help you grow funds even faster.
While you can’t skirt payroll taxes to contribute to them, the money generated from a 529 plan is generally tax-free if used for qualified expenses.
These plans typically generate money for college through mutual funds, a shared portfolio of investments, but they can use individual funds too. Unlike retirement accounts, you can’t make pre-tax contributions to them.
You can claim a 529 plan tax deduction on your income taxes, a tax credit that enables you to contribute even more. The State of Utah offers a 5% tax credit of up to ,070 for single filers, ,140 for married couples in 2021.
Here’s a rundown of some of the top benefits of 529 plans and the ways they can grow your college savings:
No federal taxes
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Account holder control
You must be at least 18 years old to open a Utah 529 plan.
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0,000 total per beneficiary ― but you can contribute to someone else’s fund.
Ground Rules on Utah 529 Plan Withdrawals, Beneficiaries and More
The beneficiary has no control over when or how much money is withdrawn from the account, or any say on investment options. The account holder has to request a withdrawal for qualified expenses or pay a penalty for a non-qualifying disbursement. So no, your student can’t blow your savings on digital currency for Fortnite or Roblox.
Conventional 529 plans let you choose the investment vehicle you feel will serve your needs best, but prepaid plans leave the investing to the state.
Who can benefit:
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Account holder requirements:
529 plans are tax-advantaged investment accounts used to grow money for education expenses. They come in two forms: the widely used education savings plan and the dwindling prepaid tuition plan, which is only accepted at a handful of Utah colleges.
Who can contribute:
Knowing what it takes to start and maintain a 529 college savings plan is one thing. Making the most of it is another. But there are services that can help you maximize your investments and hit your goals. Upromise is a rewards program that offers tools and advice to help you hit your savings goals, maximize your plan’s benefits and find additional ways to save along the way.
Ways to contribute:
As flexible as 529 plans are, there are still rules regulating them.
Neither you nor your beneficiary has to live in Utah to qualify for a 529 plan in the state. Yes, you can start a Utah educational savings plan and use it for qualified expenses in another state. However, your account will still be subject to Utah’s rules.
Annual contribution caps:
Anyone with a Social Security number or tax identification number can be a beneficiary.
Lifetime contribution caps:
Anyone can contribute: family, friends, acquaintances — though only the account holder can claim the tax deduction.
529 plans may impact need-based financial aid. If one of the beneficiary’s parents is the account holder, needs-based financial aid could be decreased by up to 5.64%. If you’re both the beneficiary and account holder, that deduction could climb up to 20%.
For non-qualified expenses, money generated from 529 investments is subject to state income tax and a 10% penalty.
More Frequently Asked Questions about 529 College Savings Plans
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How Do 529 College Savings Plans and Prepaid Tuition Compare?
You don’t have to be an experienced investor to generate money from your 529 plan. But you’ll likely have general options for how aggressively or conservatively your account targets growth. The closer to college a student is, the more you’ll likely want to ease off the gas and target safer investment options.
,000 per beneficiary ― you can contribute more, but you’ll be hit with a gift tax.
How will a 529 Plan Impact Financial Aid?
Still got a few “what abouts” lingering in your mind? As simple as it is to set up and maintain a 529 college savings plan, you’ll probably want to make sure you’re maximizing this long-term investment in higher education. Here are some more frequently asked questions:
What happens to unused money in a 529 plan?
Both are technically 529 plans. But while conventional 529 plans are becoming more popular, prepaid tuition plans are dwindling. Prepaid tuition plans are more rigid. They’re only accepted at participating schools, down to just eight institutions in Utah, and any money generated from them is only used to lock in the current rate of tuition.
- Roll over the money into another beneficiary’s account, including K-12 tuition.
- If the beneficiary decides not to go to college, other forms of training, such as vocational school or apprenticeships may qualify.
- Pay taxes on it and take the 10% penalty to use the funds on something other than education. You might break even or still come out ahead.
How to Start a 529 Plan
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Plans can also generate money through 529 rewards programs that help grow savings accounts through cashback programs.
If there’s a theme here, it’s that 529 plans are flexible. You have plenty of options for unused money in a college savings plan:
Eligible expenses include tuition, books, fees, supplies, computer equipment, certain software, education loan repayment and room and board when enrolled in enough credit hours to be considered a part-time student. Other higher education expenses may qualify.
529 plans are tax-advantaged investment accounts that allow you to invest and grow your money to use on qualified education expenses. And the state of Utah happens to offer some of the best 529 college savings plans in the country — and it’s not just for Utah residents. <!–
Beyond the requirement for the account holder, there are no age-based limits on Utah’s 529 plan. The student doesn’t have to use the funds in the Utah 529 plan by a certain age or before a certain amount of time has passed.