If you were a parent or grandparent who recently used contributions to a 529 plan to finance the cost of school for your child or grand-child, you may be wondering if a 529 plan might also be used by adults for themselves to get a degree or take classes later in life? The answer is yes, it absolutely can!
For adult learners, qualified 529 plan expenses include tuition, fees, and required books, supplies and equipment. The classes must be provided by a college or university that is eligible for Title IV federal student aid. This includes community college courses and undergraduate and graduate degree programs. The 529 plan beneficiary does not have to be enrolled in a degree or certificate program for most tuition and related expenses to be considered qualified.
However, there is one exception, and that is room and board. Room and board costs are considered qualified expenses only if the beneficiary is enrolled at least half time and is pursuing a degree or certificate. Qualified room and board costs include on-campus housing and off-campus housing, up to the amount of the college’s allowance for room and board for living off-campus. Study abroad is also an option. However, travel costs are not considered to be qualified expenses.
A 529 plan is an investment account in which earnings accumulate tax free, and tax-free withdrawals of up to $10,000 per year are allowed if used for K-12 educational purposes. Regarding college, your withdrawals are tax-free if they are equal to or less than your qualified higher education expenses (QHEEs), which include tuition, textbooks, room and board (if enrolled at least half time and pursuing a degree or certificate), and more. The most common use of this account is to save for private elementary and high school tuition in addition to paying for college. However, a 529 plan account owner can name any U.S. citizen with a social security number or taxpayer identification number as the beneficiary, regardless of age. The owner and beneficiary can even be the same person – YOU!
Not just for the young, 529 Plans can be used for the young at heart. There’s generally no beneficiary age limit for contributions or distributions. Many middle-aged adults want to enroll in school mid-career to acquire new skills and many Baby Boomers want to stay active in retirement and round out their knowledge or learn a language, even take music appreciation courses in their golden years. If you think you might want to take advantage of educational opportunities in the future, the 529 is a great savings vehicle that you can use.
You can also change the beneficiary of a 529 plan account, so if there is money left over in an account you set up to pay for a child’s or grandchild’s education, you can transfer what’s left in that account to yourself, as the beneficiary, if you are considering a return to campus.
And there is more good news – anyone is allowed to contribute to a 529 plan! This means your kids, other family members, or dear friends can help you achieve your goal of additional education. Many states have no minimum required amounts when contributing to a 529 plan account, and additionally, there are no annual contribution limits. In some states, adult students may be able to reduce their state income taxes by funneling their tuition payments through a 529 plan. This can be like getting a discount on tuition. If a contribution is being given as a gift, it will qualify for the annual federal gift tax exclusion, meaning there won’t be any tax consequences as long as it is under this year’s $18,000 limit. (Remember, gift tax is paid by the giver of money, not the receiver).
Reach Out to Us: 529 plans are a valuable tool to assist adults with educational expenses, whether you are a first time college student, or looking for a career change. Our TFG CPAs can help you set up a plan that’s right for you. Remember, the IRS does not allow double-dipping when it comes to federal tax benefits. Any expenses used to generate the Lifetime Learning Tax Credit cannot be included in qualified expenses to justify a tax-free 529 plan distribution. For example, students who receive the full $2,000 tax credit on the first $10,000 of college expenses must subtract the $2,000 from their cost of attendance to calculate their 529 plan qualified expenses. For additional information on 529 plans, please refer to our previous article here. Call TFG today to make sure you are making the most of this opportunity toll free at 855-542-7537.
