The college savings industry has embraced May 29 as “529 Day,” an opportunity to remind parents of future college students about the benefits of tax-advantaged 529 college savings accounts.
According to Sallie Mae, fewer than one-third of parents save for college using a 529 plan, which offers tax-free growth and no taxes due on any withdrawals used to pay for college. You can also use up to $10,000 tax-free for qualifying K-12 expenses.
Indiana's CollegeChoice 529 Savings Plans offer additional benefits, including tax credits for contributors. Indiana residents can claim a state tax credit of 20 percent on contributions of up to $5,000 a year to its savings plan. Michigan residents have similar incentives in the Michigan Education Savings Program (MESP).
Indiana and Michigan residents are not limited to investing in their state's 529 plan, but taxpayers must contribute to their home state’s 529 plan to qualify for state income tax benefits.
These trying times often tempt people to limit their savings or even rush into withdrawals that incur penalties. Experts recommend staying the course and focusing on the long-term benefits of saving for expenses such as higher education.