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Understanding 529 Plans
Ready to start saving for a loved one’s future, but don’t know where to begin? Let’s see how 529 plans work, how their benefits can help you meet your educational savings goals – and how to get started.
What You Need to Know About 529 Accounts
A 529 college savings plan is a type of investment account that’s usually sponsored by a state and can be used to save for higher education.
Named for Section 529 of the IRS tax code, 529 plans are popular because they offer great tax benefits and because they’re easy to set up, maintain, and use to pay for college expenses. Each account has one account owner (the person who controls the account) and one beneficiary (the future student). You may name a successor account owner to step in in the event of your death or incapacity.
Common 529 Questions
Who can open an account?
You can open an account for your loved one’s future education, whether you’re a parent, grandparent, other relative, or family friend. There are no income limitations to open an account. You must be at least 18 years of age, have a valid U.S. address, and a Social Security Number or Individual Tax Identification Number (ITIN).
Who can contribute?
Anyone can contribute to a 529 account regardless of who owns the account. That means anyone – extended family members or even friends – can help save for a loved one’s future college expenses.
What’s a beneficiary?
A beneficiary is the person whose future college costs can be paid from the 529 account. An account can be opened for a child, grandchild, friend, or even yourself. The beneficiary must have a valid U.S. address and a Social Security Number or Individual Tax Identification Number (ITIN).
What if a beneficiary doesn’t use the funds?
You can leave the funds in the account for them to use later or change the beneficiary to another member of the family.
You can leave the funds in the account and name a new beneficiary, such as a future grandchild, at a later date.
Or, you withdraw the funds as a non- qualified withdrawal, the earnings portion (not the contribution) is subject to federal and state income taxes, a 10% federal penalty tax and Illinois recapture provision deductions previously taken for Illinois income taxes. 1
How does a Bright Start 529 account impact financial aid?
There are several general rules of thumb when investing in a 529 plan. We recommend that you review with your own advisors as well as the college admissions office and your high school guidance counselor for information regarding your own situation.
If a parent is the account owner of a Bright Start account, up to 5.64% of the value of the account may be included in the expected family contribution calculation for federal financial aid purposes.
Financial aid rules may change at any time. Visit studentaid.gov for details and specifics regarding 529’s and their financial aid treatment.
529 Basics Webinar
Our free webinar, 529 Basics: Save for College While Saving on Taxes, covers everything you need to get started on saving for college. Learn when to start saving, how much to save, how it will impact your taxes, and how to set up your account.Sign Up Today
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