Despite high-profile entrepreneurs like Elon Musk and Gary Vaynerchuk saying that a college degree is not required for success, many American families still regard a college education as the route to the American dream.
With the rising cost of college tuition, and the specter of crippling student loan debt, investment in a 529 college savings plan makes good sense. 529 plans are a dual college-saving and tax-relief option for people who want to set cash aside over time to make sure they can pay for higher education. The plan was named Section 529 because that is the Internal Revenue Code under which it was created.
Studying to become a doctor or a lawyer may be a dream for some, but other callings are gaining in popularity and appeal. Luckily, traditional colleges aren’t the only thing you can use the money in your 529 plan for.
Withdrawals from 529 plans are called distributions. If you withdraw any money it has to be used toward qualified education expenses. If the cash is not used for qualified education expenses you have to pay federal income tax and you also have to pay an additional 10 percent penalty.
If you don’t want to attend a traditional college, there are a whole host of options available to you. You can use the savings for anything that is defined as a college, university, vocational school, or postsecondary institution eligible to participate in federal student aid programs administered by the U.S. Department of Education. This means you can use 529 plans to pay for beauty school or barista college. Even theological seminaries are covered.
“No matter what you want to study you will need to plan to save money to do so," says Robert Cavanagh, Senior Vice President of David Lerner Associates. "In most cases, it makes sense to start early. A 529 plan can help pay for many different types of study.”
Sports and active lifestyle vocations are also on the table when it comes to 529 plans. Some of the nontraditional schools that are eligible include the Golf Academy of America and the commercial diving program CDA Technical Institute in Jacksonville, Florida. You can broaden your horizons to include learning to be a massage therapist or studying film production and directing. If you want to learn how to work on machinery or work in the automotive industry, the New York Automotive and Diesel Institute qualifies for 529 distributions.
It is interesting to note that for someone training to be a chef funds from a 529 may be used to pay expenses related to attending a culinary institute. To use the funds for these expenses the institution must participate in the Education Department's federal student aid program.
The higher education course of study doesn’t need to be in the United States. There are more than 400 schools overseas that are also eligible for 529 funds. You could study at the Glasgow School of Art or attend Franklin College in Switzerland and go skiing when you get free time. Another way to travel is to find a study abroad program run through a U.S.-eligible school.
So although a purely academic degree might not be your chosen path, a 529 college savings plan makes perfect sense for anyone wanting to get prepared for a chosen field of work covered by the plan's rules.
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