{"id":136,"date":"2017-02-25T09:08:56","date_gmt":"2017-02-25T17:08:56","guid":{"rendered":"http:\/\/www.thekyo.me\/?p=136"},"modified":"2017-02-25T09:08:56","modified_gmt":"2017-02-25T17:08:56","slug":"5-20-what-529-basics","status":"publish","type":"post","link":"https:\/\/thekyo.me\/test\/2017\/02\/25\/5-20-what-529-basics\/","title":{"rendered":"5-20 What? 529 Basics"},"content":{"rendered":"

If you’re interested in\u00a0this you’re probably a parent and looking to save for your kid’s future college fund and heard that a 529 is a great way to do it. \u00a0That’s awesome and from what I can tell mostly\u00a0true. \u00a0Given how fast higher education costs are growing planning ahead is a good thing, but is it always the right time? \u00a0Let’s dig in a bit more.<\/p>\n

Should I open a 529?<\/h3>\n

First thing we need to look at is if the 529 is actually the right thing vehicle for you at this point. \u00a0Generally speaking I’d consider the 529 after you’ve\u00a0started contributing pretty heavily to\u00a0(and hopefully are close to maxing out) your own retirement savings accounts (401k\/IRAs as I’ve\u00a0discussed before<\/a>).<\/p>\n

If the above isn’t true, I’d suggest starting with\u00a0the more traditional retirement vehicles. \u00a0Both options\u00a0have similar preferential tax treatment, but the 529 is much more limited in its use.<\/p>\n

What exactly is a 529 Plan?<\/h3>\n

Sweet so assuming you’re setting yourself up for retirement already let’s talk about 529s.<\/p>\n

From the\u00a0SEC’s website<\/a><\/p>\n

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A 529 plan<\/b> is a tax-advantaged savings plan<\/b> designed to encourage saving for future college costs. 529 plans<\/b>, legally known as \u201cqualified tuition plans<\/b>,\u201d are sponsored by states, state agencies, or educational institutions and are authorized by Section 529<\/b> of the Internal Revenue Code.<\/span><\/div>\n<\/blockquote>\n
Sounds pretty good. \u00a0So essentially they are funds, usually run by the State, that grow and can be used tax-free on qualified expenses. \u00a0Ok, let’s dig in some more on the state funds part.<\/div>\n<\/div>\n
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States and 529s<\/h3>\n
In general each state seems to run their own 529s<\/a>. \u00a0Note that while each state has their own program you do not generally have to be a resident of that state to use their program. \u00a0For example: To participate in the Utah 529 you do not have to live in Utah. \u00a0Note that some states do offer some tax deductions if you participate in their 529, e.g. Virginia<\/a>. \u00a0In California, they offer no such benefits so I’m free to use any state’s 529 without feeling like I left something on the table.<\/div>\n
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These programs let you choose from a selection of market\u00a0funds to create your portfolio. \u00a0Many have an easy\u00a0“age based target” set of funds. \u00a0These funds will usually have a theme (domestic, aggressive, moderate, etc) and will become more conservative as the 529 beneficiary reaches college age. \u00a0You will generally also have the option to create your own mix of funds (from a limited selection they offer).<\/div>\n

Qualified\u00a0Institute<\/h3>\n
Awesome so you can grow investments and use the gains tax free for higher education at a qualified institute. \u00a0Most people think of college when you hear “higher education” and they are probably going to be pretty safe that those are qualified institutes, but 529s are actually a little bit more flexible than that. \u00a0Qualified institutes could be schools abroad and vocational schools as well.<\/div>\n
According to the IRS<\/a>:<\/div>\n
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An eligible educational institution is a school offering higher education beyond high school. It is any college, university, vocational school, or other post secondary educational institution eligible to participate in a student aid program run by the U.S. Department of Education.<\/p>\n

This includes most accredited public, nonprofit and privately-owned\u2013for-profit postsecondary institutions.<\/p>\n<\/div>\n<\/blockquote>\n

The best way to check is the ask the school and check online<\/a>. \u00a0Do both as some schools may not show up in the list online.<\/p>\n

Qualified Expenses<\/h3>\n
Generally these are any expenses that are required to attend the school. \u00a0A few examples below:<\/div>\n