Freedom from tax penalties
News for parents: the 529 College Savings Plan you’ve set aside for your little one now has more (immediate) benefits!
529 plans are tax deductible investment accounts great for saving for future education costs. Two types of plans are available: prepaid tuition plans and education savings plans. The most common was the college savings plan. Under a new name, you’ll love the new liberal tax benefits.
Taxpayers can contribute to education savings plans, and like any worthwhile savings account, funds earn interest over time. In Oklahoma, taxpayers can contribute up to $10,000 per year for an individual, or $20,000 per year for a married couple filing jointly, and deduct this at tax time. Deductions vary by state.
An amendment to Section 529 of the IRS tax code expands the definition of a qualified higher education expense, the true benefit of the savings plan, so parents can now make withdrawals from the savings account for any expense related to tuition “in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.”
You can now make tax-free withdrawals from your savings account for dozens of educational expenses.
Cover the costs for students in kindergarten through 12th grade, up to $10,000 per year.
- School tuition
- Computers, technology, internet access, etc.
- Private tutoring
Continue to pay for college students.
- Room and board
- Computer software and equipment
With the new provisions in place next year, it’s important to remember that the longer your money stays in the 529 savings plan, the more it will grow. As always, earnings are considered tax-free income.