Saving for education can be an investment in generational wealth.

A 529 plan, named after Section 529 of the Internal Revenue Code, is a tax-advantaged savings plan designed to encourage families to save toward future education expenses. States, agencies or educational institutions often sponsor these plans. They were developed to cover college education costs, but their scope has dramatically expanded over the last decade.

Types of 529 Plans

529 plans come in two forms: prepaid tuition and education savings. Each has its own advantages.

Education Savings Plans

Education savings plans offer tax-deferred growth and tax-free withdrawals as long as they are used for qualified education expenses. This type of plan remains under the control of the donor, usually a family member. Non-traditional learners can also start an education savings plan to build funds for themselves.

Prepaid Tuition Plans

The prepaid tuition plan allows you to lock in future college tuition at today's rates for future attendance at selected colleges and universities. If tuition rates continue to rise, this could potentially mean savings for those who attain education at lower, locked-in tuition rates.

529 Plans and Trade Skills Education

While many consumers may associate 529 plans with college education, a number of legislation bills passed by Congress have expanded the scope of eligibility for 529 funds. 529 funds can be used toward trade schools and apprenticeships. Trade schools, sometimes referred to as vocational schools, technical schools or career colleges, are post-secondary educational institutions that offer skills training for a particular occupation. They typically take less time to complete and are often more affordable than a bachelor's degree from a four-year college.

Graduates of trade schools can often enter the workforce sooner than those pursuing a four-year or advanced degree. Learning or apprenticing in a trade can provide people with valuable skills and well-paying careers compared to those without skills certifications.

529 Plans and K-12

Legislative expansion also allows funds saved in 529 plans to cover the costs of K-12 education. For parents who opt for private schools, this can offer a short-term path to saving tax-advantaged funds toward covering related costs. According to the IRS, 529 funds can be used toward tuition and fees up to $10,000 in the beneficiary's chosen elementary or secondary public, private or religious schools.

Whether you're considering a traditional college education, trade school, or apprenticeship or looking for ways to plan your savings for K-12 expenses, a 529 plan can be a valuable tool to help tackle education costs. Understanding and starting early can help build a brighter future for students of all ages.

If you need help with wealth management planning and have questions about how a 529 plan fits into your goals, we can help. Visit us online and learn more about how our Wealth Management team can help you.

Sources:
https://www.cnbc.com/select/how-529-college-savings-plans-work/
https://www.irs.gov/newsroom/irs-offers-guidance-on-recent-529-education-savings-plan-changes
https://www.forbes.com/advisor/student-loans/529-plan-k-12-education/
https://www.startsaving.la.gov/

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.