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By Teresa Stewart - May 29, 2018
May 29 is nationally recognized as 529 College Savings Day, a day focused on the value of investing for future education expenses.
Many people are unfamiliar with 529 education savings plans, which may provide tax advantages and are a popular way to invest for education. With tax-free growth and tax-free withdrawals, 529 plans can help you keep up with the rising costs of education. Additionally, parents with a defined strategy to save for college save 76 percent more than parents who are saving but don't have a plan.1
On 529 day, here are five things you should know about 529 plans.
529 education savings plans are often perceived to be for traditional college students at four-year colleges. But 529 funds may be used for any qualified educational institution, anywhere in the United States, including:
There's no maximum age for 529 plan beneficiaries, so funds can also be used for career retraining or an advanced degree. As long as the school is eligible, you can use 529 plan assets—even for part-time students. The U.S. Department of Education maintains a database of accredited postsecondary schools .
Most 529 plans do not have state residency requirements, so you can look for attractive plans in other states, or you can keep your existing plan if you move. For example, if you are a California resident, you can invest in the Kansas 529 plan and send your student to school in North Carolina.
State residency is generally required for a subset of "prepaid" state 529 plans, however. Prepaid plans lock in current in-state public tuition rates, and the state guarantees the tuition amount for future attendance.
More than 30 states offer state income tax deductions or credits for 529 plan contributions, and several of these also offer tax parity. Tax parity means a state allows tax deductions for contributions to 529 plans from any other state.
Remember that tax incentives are just one consideration when selecting a plan; fees and investment options are also important. Check with your state or 529 plan to determine if deductions might apply to your situation. Depending on whether your state has income tax or deductions for 529 contributions, you may look into benefits offered by other state plans.
There might be extra 529 money available, if you know where to find it. Some employers match employees' contributions to their children's education accounts, up to a certain amount. Similar to 401(k) matches, education savings matches are becoming a more common feature in employee benefits packages.
Additionally, some states offer matching 529 grants for those who meet certain income requirements. These grant programs, generally limited to that state's 529 plan, offer percentage or dollar-for-dollar matches, up to a set amount.
The State of Kansas offers the K.I.D.S. Matching Grant Program to aid Kansas families who are also enrolled in the Learning Quest 529 Education Savings Program . The program matches eligible contributions up to $600 annually.
Read how one family used 529 accounts and matching grants to fund their sons' higher education dreams.
Say goodbye to wish lists and gift receipts, and let your friends and family pitch in for your child's education. Celebrate birthdays, holidays or other milestones by making gift contributions directly into a 529 plan account. Through Ugift® , anyone can transfer money easily and securely into a participating 529 account, with electronic or mailed contributions.
529 plans can help you develop a plan for investing for education.
Beyond the tax-advantages afforded by 529 plans, gifting money for college may help fulfill a child's dreams for the future. An accelerated gift may also reduce the benefactor's estate taxes. This can add up to good news for college-bound recipients and gift givers alike.
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Boost savings and lessen the need for loans. Have loved ones give money towards college for holidays, birthdays and other milestones.
College decisions are hard enough. Don’t let these common 529 myths keep you from getting started.
The gift of education invests in more than tuition, books or room and board. It invests in someone's heartfelt hopes and passions.
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Gifts are important to kids. So is an education. Start a new tradition with college contributions.
Thinking about going back to school? It pays to investigate your college payment options and plan ahead—even if you have limited time.
1 "How America Saves for College," Sallie Mae, 2016.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
As with any investment, withdrawal value may be more or less than your original investment.
The availability of tax or other state benefits (such as financial aid, scholarship funds and protection from creditors) may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.
The earnings portion of non-qualified withdrawals is subject to federal and state income taxes and a 10% federal penalty.
Before investing, carefully consider the plan's investment objectives, risks, charges and expenses. This information and more about the plan can be found in the Learning Quest Handbook, available by contacting your financial advisor or American Century Investment Services, Inc., Distributor, at 1-800-579-2203, and should be read carefully before investing. If you are not a Kansas taxpayer, consider before investing whether your or the beneficiary's home state offers a 529 Plan that provides its taxpayers with state tax and other benefits not available through this plan.
Notice: Accounts established under Learning Quest and their earnings are neither insured nor guaranteed by the State of Kansas, the Kansas State Treasurer or American Century Investments.
Administered by Kansas State Treasurer Jake LaTurner
Managed by American Century Investment Management, Inc.
Distributed by American Century Investment Services, Inc.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.