![]() These gifts can’t be taken back, and you can’t transfer assets between beneficiaries. “However, there are potential drawbacks to that strategy,” Polimeni notes. If you want to set aside money for educational activities that a 529 account doesn’t cover, you could consider a custodial account under the Uniform Gifts to Minors Act/Uniform Transfers to Minors Act (UGMA/UTMA). Consult a tax advisor about the tax implications.īeyond 529s: Another way to save for education Or it could even be used to fund your own or your spouse’s continuing education. If there’s still something left over, it can stay in the account indefinitely - and, decades later, you could change the account’s designated beneficiary and the remaining funds can be used to help pay the cost of a grandchild’s education. You could roll over the rest of the funds to another 529 account for certain other members of the beneficiary’s family – including siblings, first cousins or even a niece or nephew – federal income tax-free. Suppose you set aside $200,000 in an account with your daughter as the beneficiary, and you spend only half of the money. ![]() ![]() The rules are flexible when it comes to how many students can benefit from a single 529 account. “But if you use those funds to pay for private piano lessons, you’ll have to pay federal (and possibly state and local) income tax as well as a 10% additional federal tax on the earnings portion of the money you withdraw.” You will never pay income tax or the additional federal tax on the principal portion of your withdrawal, regardless of what it is used for. “Using 529 account funds, you could pay for tuition at an accredited institution for your daughter to get a music degree,” Polimeni says. While 529 accounts offer plenty of flexibility in paying education expenses, there are costs that cannot be covered with 529 assets. Expenses for special-need students: If your beneficiary is a special-needs student, certain other expenses necessary or required for the special-needs student to enroll at or to attend an eligible post-secondary school may also qualify.Tech equipment and support: Computers and peripheral equipment, software, internet access and related services that are to be used primarily by the 529 beneficiary during any of the years the beneficiary is enrolled at an eligible postsecondary school.College costs beyond tuition: Certain room and board, books, supplies and equipment required for enrollment or attendance at an eligible educational institution. ![]() ![]() Polimeni, head of Education Savings Programs for Bank of America. “Tuition and fees are the biggest college bills you’ll probably face, but there are other eligible expenses,” says Richard J. They allow you to invest money for a beneficiary, and when the student is ready, the assets can be withdrawn free from federal (and potentially state and local) taxes - as long as you use them to pay for “qualified higher education expenses.” 1 529 ACCOUNTS HAVE LONG BEEN A POPULAR WAY to set aside funds for education. ![]()
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