5 benefits of starting a 529 account

This article was written for our sponsor, NC 529.

A college education makes higher salaries and better benefits possible, but it takes money to earn money — and college and trade programs can be expensive, especially without any financial assistance.

The NC 529 Plan is a tax-advantaged way to save and invest for education. It allows individuals to contribute to the account on a regular basis to prepare for future expenses. From being easy to open to convenient contributions, here are just a few of the benefits of opening an NC 529 Account.

Easy to open

Opening an NC 529 Account is probably easier than you think, according to Takeila Hall, an NC 529 Regional Representative with 23 years of experience working with College Foundation of North Carolina.

“You can open an account for anyone — even yourself — and start saving for education,” said Hall. “You can enroll online, easy as 1-2-3.”

The minimum initial contribution for the account is just $25.

Help is available throughout the process, said Hall. “We have a new virtual assistant and a dedicated call center that can answer questions. Answers to frequently asked questions can also be found on the website.”

Another great resource for support is NC 529 Webinars. Potential participants and current account holders can get all their questions answered and learn all of the ways to use 529 funds. Anyone can browse the calendar of events on the website to register and learn more about upcoming webinars.

“One of our most popular webinars talks about how to use the money you’ve saved,” said Hall.

Not just for kids

While parents are often concerned with saving for their children’s future college expenses, many adults themselves are returning to school for various reasons — especially as COVID has spurred more career changes. Getting additional education is now much easier thanks to the ubiquity of remote programs that allow students to study and participate in classes from home.

However, according to a survey by the Education Advisory Board, while 60% of adults without college degrees say they have considered going back to school, about 70% say they feel they can’t afford it.

Adults aiming to go back to college can use 529 account funds to save for their education, dedicating a part of their income specifically to saving for their own education. This can make the financial aspect of learning less of an intimidating barrier.

Simple contributions

Participants can save in a way that works best for them. They can make contributions on a regular basis or occasionally. Currently, the maximum amount that can be contributed to a 529 account is $540,000 per beneficiary. The Maximum Projected Expenses amount is based on four years of undergraduate school and three years of graduate or professional study.

While it’s a good idea for a parent to make regular, automatic contributions to a child’s 529 starting early on, parents can reach out for help to grow the balance.

“You don’t have to do it alone,” said Hall. “Family or friends can show their support. If family members don’t know what to get them for their birthday or Christmas, they can give them a gift of an education. We do have gift forms on our website, so they send money directly to their account.”

Earnings can be withdrawn tax-free

When you spend the funds in your 529 account on a qualified expense, earnings are tax-free. According to Hall, qualified education expenses include K–12 tuition, college expenses, room and board, books, a school computer, special needs equipment, student loan payments, approved apprenticeship programs and trade schools, and more.

“Some people may not know if an educational expense will be considered qualified or not, but we can help with that,” said Hall.

If a non-qualified withdrawal is necessary, the participant must pay federal and state taxes on the earnings portion of the withdrawal plus a 10% penalty. Knowing that this penalty exists can help motivate participants to stick to their savings plan.

Funds can be passed on

Should a student not need the full amount saved in their 529 account, there are a number of ways that money can be used. One smart option is to roll the money over into an account for a younger sibling or someone related to the original beneficiary. This allows other people to benefit from the saved money while preventing a penalty from being assessed on non-qualified withdrawals.

“Ideally, the child starts using that money at 18, but what happens if the student gets a scholarship and they don’t need to use all the money in their account?” said Hall. “They could save it in their account and use it the second or third year. Maybe they didn’t need it for their associate degree, but they could use it for a bachelor’s degree, or maybe for graduate school.”

This article was written for our sponsor, NC 529.