Benefits of a 529 College Savings Plan
Section 529 plans are accounts that offer tax-advantages for educational saving and allow families to begin contributing to a child’s college fund as soon as a baby is born. Such accounts can receive contributions from parents, family members, and friends (up to a certain dollar amount each year), and they grow free of taxation. All withdrawals used for qualified educational expenses are also exempt from federal income tax, and many states have begun waiving their taxes, as well. Virginia offers a 529 education savings plan, called Virginia529, that comes with some great tax incentives to help you save money for academic expenses—for both higher education and K-12. The 529 savings plan was established to help families save for tuition, room, and board, and to experience less stress at admissions time in regard to applying for financial aid or searching for scholarships. Virginia has 170 colleges and universities, with the average annual tuition, books, and housing costs hovering around $8,387 (in-state), $19,550 (out-of-state), or $23,036 (private) depending on the type of institution in which a student is enrolled.
Saving and Earnings Potential
Earnings from Virginia529 accounts grow free of federal taxes, and with regular contributions (and compound returns) the plans can make a significant impact on a child’s educational expenses. Family members and friends can contribute to a child’s college fund and get a tax benefit for doing so. The funds can be withdrawn to pay for tuition, materials, room and board, and other higher education expenses, all free from income tax. As of January 2018, you can also use up to $10,000 of the Virginia529 fund each year for qualifying K-12 school tuition. The money can be used at eligible educational institutions nationwide. If you’re a Virginia taxpayer and contribute $5,000 to a Virginia529 savings plan during one year, you can deduct $4,000 on your tax return for that year and $1,000 on your tax return for the following year. People who are age 70 or older may deduct the entire amount contributed to a Virginia529 account in one year.
Virginia 529 Plan Options
Virginia offers the following three 529 plan options:
