When the market is going up and down, and you're wondering what that means to your budget, it is tempting to put off saving for college. Of course you want the best for your children, but it's hard to save for future plans when current needs are so pressing.
A 529 lets you click, start, save.
Every 529 account is designed to make college savings easier. Start one online in just a few minutes, and with automatic contributions and tax-deferred growth, your account can have the momentum to reach your goal.
Why are 529 accounts so important?
Tuition costs are trending up, and student debt is rising. Parents and grandparents are taking on debt to help out.
Where do I find the right 529?
Almost every state has a 529 plan, so you have plenty of options. The research can seem overwhelming, but consider the tax benefits in your home state, and fees, too. NY's 529 Direct Plan offers some of the lowest fees available for 529 plans.
What's this about tax benefits?
State tax benefits vary, so it pays to compare. New York residents are eligible for a state tax deduction for contributions to their NY's 529 Direct Plan account -a deduction of up to $5,000 per person, or $10,000 for a married couple. That's in addition to tax-deferred growth on the State and federal level. Please consult with your tax advisor.*
Who can open a 529 account?
In New York, any U.S. citizen or resident alien with a Social Security Number or Individual Taxpayer Identification Number can open an account.
Who can be the beneficiary?
You can open an account for a child, grandchild, friend, or even yourself. The only rule is that the beneficiary must be a U.S. citizen or resident alien with a valid Social Security Number or Individual Taxpayer Identification Number.
How can I contribute to my child's account?
Most plans offer electronic bank transfers, contributions from your bank account, checks, and sometimes payroll deductions.
How and where can you use the money?
You can use NY's 529 Direct Plan savings at federally accredited institutions- in or out of New York, public or private- including 2- or 4-year colleges or universities or graduate, vocational and technical schools. Generally, that includes any institution with a U.S. Department of Education School Code. (Want to confirm? Check here.) Use savings for tuition, books, supplies, certain room and board expenses, computers, software and more. IRS Publication 970 has all the specific uses.
How can friends and family contribute to 529 savings?
In New York, a 529 account owner, - often grateful parents,- can sign up for a gift code with Ugift®, and share it with people who want to contribute to the beneficiary’s account.
Friends and family can also open their own NY's 529 Direct Plan account with your child as beneficiary. The owner maintains control of the account and enjoys many tax advantages. Check with your tax advisor for your individual situation.**
What if my beneficiary doesn't go to college or gets a scholarship?
You can change your beneficiary at any time to another eligible family member for their qualified higher education expenses (including tuition, certain room and board costs, books, supplies, and registered apprenticeship program expenses). You can defer withdrawals if your beneficiary attends school or an apprenticeship program later. You may also be able to roll over unused assets to a Roth IRA maintained for the benefit of your beneficiary. Certain terms and annual limits apply. Additional details may be found in the Disclosure Booklet and Tuition Savings Agreement. Finally, you can take a nonqualified withdrawal, subject to certain taxes and penalties.*†
For situations when the savings are not used for eligible higher education expenses, the account owner can take what's called a nonqualified distribution and pay the taxes on it. Nonqualified withdrawals may be subject to taxes and penalties, so check with your tax advisor for your individual situation.**
What impact does 529 savings have on eligibility for federal financial aid?
Students can still apply for many kinds of financial aid. Plus, 529 savings in accounts owned by parents are considered parental assets, and treated at a lower percentage rate in the need-based aid calculation. Get details here.
What fees apply?
Fees vary, so compare carefully at collegesavings.org. Remember that the lower the fees, the more money stays in your account to grow. NY's 529 Direct Plan, for example, has no annual account fees or sales commissions, and for every $1,000 you invest, you'll pay $1.20 a year in fees (0.12% total annual asset-based fee).
What if money's tight?
A 529 account could be a smart move that puts time to work for you. You can start small, too, since many plans, including New York's, have no minimum contributions. T he best time to start is now.
More questions? Get answers at nysaves.org
*Contributions of up to $10,000 are deductible annually from New York State taxable income for married couples filing jointly; single taxpayers can deduct up to $5,000 annually. New York State tax deductions may be subject to recapture in certain circumstances such as rollovers to another state's 529 plan, nonqualified withdrawals, withdrawals used to pay elementary or secondary school tuition as described in the Disclosure Booklet and Tuition Savings Agreement. State tax benefits for non-resident New York taxpayers may vary. Please consult your tax advisor about your particular situation.
**Earnings on federal nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements. Please consult your tax advisor about your particular situation.
†Certain restrictions apply. Rollover must be to a Roth IRA maintained for the benefit of the Beneficiary. Rollovers can only be made from accounts open for at least 15 years and cannot include contributions or earnings on those contributions made within the last 5 years. The annual rollover limit is subject to IRA annual contribution limits with a lifetime rollover limit of $35,000. Additional restrictions may apply under federal Roth IRA rules and guidance. Consult your tax advisor prior to initiating a rollover.
