When it comes to funding higher education, 529 plans are widely utilized. It’s a state-run savings program that offers tax breaks for saving up for things like college.
For estate tax purposes, money put into a 529 plan is treated as a gift. The current limit of $12,000 per recipient will increase to $17,000 in 2023. This sum consists of all gifts, not only those made to a 529 plan.
If you’re a single parent with two kids (or grandkids), you can contribute up to $34,000 a year into their accounts. The maximum gift per recipient from a married couple is $34,000.
If your gift exceeds the IRS’s threshold, you must file a gift tax return. This surplus can be used to reduce the amount of estate and gift taxes you owe over the course of your lifetime.
How to Utilize a 529 for Private School?
A 529 can now be used by families to pay for a child’s tuition at a private elementary or secondary school, thanks to the Tax Cuts and Jobs Act of 2017.
The new regulations allow families to use up to $10,000 annually per beneficiary for private K-12 school education costs.
Private school fees are not considered. Funds from a 529 plan can’t be used to buy things like computers or uniforms for school.
The Tax Cuts and Jobs Act was passed at the federal level, but several states choose to ignore it. If you reside in a state that does not include K-12 tuition as an eligible expense, you may be subject to state income taxes as well as fees on withdrawals from the 529 plan.
California and Nebraska impose state-level restrictions.
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Withdrawal of 529 Plan
If you’ve decided to proceed, there are three stages to withdrawing funds to pay for private basic, middle, or high school:
- Check state regs: In some states, K-12 tuition might not qualify. Review state rules for penalties.
- Connect with school aid: Contact financial aid for scholarships and assistance your child might qualify for.
- Withdrawal process: Calculate tuition, request a 529 plan withdrawal either online or via call to administrator, choose payment destination.
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