529 Plans That Could Benefit You and Your Family

By Zeke Anders on August 12, 2021

Written By: Zeke Anders

529 plans can be an excellent tool for savers to take advantage of both tax-deferred growth and state income tax deductions while planning for long-term expenses. The Alabama 529 plan currently allows taxpayers to deduct contributions up to $5,000 for single filers and $10,000 for those married filing jointly from income. Funds within the plan grow tax-deferred, and withdrawals used to pay for qualified expenses are not subject to federal or state tax. Qualified expenses might include tuition and fees, books, room and board, etc.

Recently, the Alabama 529 has been updated to expand the scope of “qualified expenses,” allowing participants the use of funds for costs not limited to typical college expenses. As of July 1, 2021, CollegeCounts Alabama 529 plans will include allowances for fund use towards:

  • Apprenticeship programs
  • K-12 tuition expenses (up to $10,000 annually)
  • Qualified student education loan payments (up to $10,000 lifetime minimum)

These changes create greater opportunities to maximize the use of funds, and therefore tax benefits. Changing the beneficiary of the plan has been a way to ensure leftover funds are able to be used for college expenses, avoiding the 10% tax penalty incurred when plan earnings are used for unqualified expenses, but occasionally funds remain. For example, now, grandparents can change the name of a 529 plan beneficiary to allow funds to pass to grandchildren for K-12 expenses, or to assist with student loan payments.

Allocating these funds towards student debt costs does come with some drawbacks. Tax deductions usually available to those incurring student loan interest can be nullified if 529 funds are used to pay down debt. Therefore, careful planning and consideration are required to ensure funds are used in the most beneficial ways.

Zeke Anders-Planning Specialist | zanders@twickenhamadvisors.com

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