Gary W. Pelletier, CLU, ChFC, AIF®

Northeast Planning Associates, Inc.

Corporate, Estate

& Financial Planning


College Savings Insight

| October 26, 2020
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As we continue to navigate a world with COVID, many parents and students are reconsidering the traditional college experience and, as such, may be wondering what their options are with college savings.

The most popular college savings vehicle is the 529 plan, a state-sponsored, tax-advantaged investment account where amounts spent on qualified education expenses are not considered taxable. 

If you have money in a 529 account, below are a few options you may want to consider, in the event college plans are potentially shifting:

  • 529 beneficiaries can be changed to other family members (siblings, nieces, nephews, etc). If there are other potential beneficiaries in the family, unused savings can potentially be used for their education.
  • Some families are choosing to send school-aged children to smaller private schools this year. As a result of the SECURE Act, up to $10,000 of 529 assets per year, per beneficiary can be used for qualified K-12 education expenses.
  • 529 savings can also be used for approved apprenticeship programs if a student beneficiary is considering going into a skilled trade instead of a traditional college.
  • Students may have decided to go part-time or defer their college enrollment. If there are student loans from previous years, payments during this deferral may be required.  Up to $10,000 of 529 savings in a beneficiary’s lifetime may be used to help repay student loans.
  • While not recommended, if 529 plan savings are needed to meet other non-qualified expenses, 2020 may be the year to bite the proverbial tax-bullet. Incomes for many have decreased and the federal government has provided some tax-relief, which could result in a lower tax bracket this year.  If you choose to take money from a 529 plan for non-education expenses, keep in mind that the earnings portion withdrawn will be taxed as ordinary income, and may be subject to an additional 10% penalty.

529 college savings plans offer much more flexibility than they used to, but whatever you or your family members are considering, it’s definitely worth a discussion before making any decisions.

Information in this material is for general information only and not intended as investment, tax or legal advice. Please consult the appropriate professionals for specific information regarding your individual situation prior to making any financial decision.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.

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