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529 Plans: A Study Guide for Savers

By Jennifer Osgood

As summer ends and students return to school, many former students have returned to paying for school. Beginning in September, after three years’ forbearance, federal student loan borrowers are required to resume their loan payments. Many of these people felt the strain of loan payments long before the Student Loan Payment Pause, and will now struggle even more to fulfill their obligations.

If you or someone you care about has higher education in their future, you can start saving now to avoid a mountain of student loan debt later. And, in the state of South Carolina, the money you put away for education can save you money on your taxes.

Let’s have a quick lesson on 529 Plans. Don’t worry; no quizzes.

Created under section 529 of the Internal Revenue Code, a 529 plan is a state-sponsored program that allows parents, relatives, and friends to invest in a child's (or any person's) K-12 and college education.

Earnings in 529 plans grow federally tax-deferred, which means your money can compound faster because you don't have to pay taxes on current investment income or capital gains. Even better, withdrawals are tax-free as long as you use the money to pay for qualified education expenses, which typically include tuition, books, school supplies, and room and board.

Any U.S. citizen or resident alien of legal age can open a 529 account. There are no age, income, or family relationship limits. Family and friends can establish their own 529 accounts for the same child.

In addition, any legal U.S. resident can be a beneficiary of a 529 account. You can even open an account with yourself as the beneficiary, to help with your own higher educational expenses. As an account owner, you determine who will use the money, and you can change the beneficiary of the account at any point.

A popular misconception about 529 plans is that the only qualified expenses are those related to attending a traditional four-year college. Actually, assets in a 529 account can be used at any eligible institution of higher education. That includes not only four-year colleges and universities but also qualifying two-year associate degree programs, trade schools, and vocational schools—both at home and abroad. If your beneficiary chooses to pursue post-secondary training in their chosen field—whether as a computer expert or cosmetologist, an artist or an electrician—there's a good chance you can pay for that training with your 529 assets.

Qualified 529 plan expenses include: tuition, room and board, meal plans, academic fees, books and supplies, and equipment needed for school, such as computers or specialized software programs.

Most states allow up to $10,000 of 529 plan funds to be used for K-12 private school tuition. In recent years, use of 529 plan funds has been expanded to include qualified student-loan repayments, with a maximum lifetime limit of $10,000

These funds never expire and the account beneficiary can be changed at any time.

If you plan to assist a family member with educational expenses, a 529 plan has many advantages. In South Carolina, taxpayers are eligible for a state income tax deduction of up to 100% of contributions to the state-sponsored 529. With a wide range of qualified expenses, the ability to change beneficiaries, and no expiration date, a 529 plan is a very flexible savings vehicle. If you choose to withdraw funds from a 529 for something other than a qualified educational expense, you will pay federal and state taxes on the withdrawal in addition to a 10% penalty on earnings in the account.

To determine if a 529 plan is right for you, be realistic about education plans, expenses, and how much you’re able to save. A financial advisor can help you estimate the timing and amount of 529 plan contributions needed to put you on track to meet your goals.

Jennifer Osgood is the president of Wagner Wealth Management, which has offices in Greenville, Anderson, and Oconee counties. Call them at 864-236-4706 or visit to learn more about the firm.

Securities offered through Arkadios Capital. Member FINRA/SIPC. Advisory services through Wagner Wealth Management Advisors, LLC. Arkadios Capital and Wagner Wealth Management Advisors, LLC, are not affiliated through any ownership.


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