This article covers key strategies for saving for education, including the use of 529 plans and Coverdell ESAs.
The Power of 529 Plans
A 529 plan is a tax-advantaged tool that allows families to save for education with tax benefits. Funds invested in such a plan grow tax-free, and qualified withdrawals are also tax-exempt. Qualified expenses include tuition, room and board, course materials, and costs for computer technology.
Choosing the Right 529 Plan
When selecting a 529 plan, it’s essential to consider state tax benefits. Over 30 states offer tax deductions or credits for contributions. Residents of certain states receive tax benefits irrespective of the selected plan, allowing for optimized investment returns.
New FAFSA Rules for Grandparents
Starting from the 2024-25 academic year, the new FAFSA rules state that assets in grandparent-owned 529 plans are no longer considered when determining financial aid eligibility. This change enables grandparents to contribute to their grandchildren's education without impacting their financial aid.
Education savings strategies should be considered to maximize funding and minimize losses in financial assistance. Retirement accounts like 529 plans and Coverdell ESAs provide numerous opportunities for families.
