|Take Full Advantage of Tax Benefits
Earnings within your 529 plan grow free from federal taxes. Furthermore, as long as the money withdrawn from your plan is used for qualified expenses at an eligible institution, no federal taxes will need to be paid on these earnings. This is a compelling reason to continue saving through your 529 plan. Non-qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty. Such withdrawals may have state income tax implications.
|Save Enough to Cover All Eligible ExpensesWhile you probably know that your 529 plan savings can be used to pay for college tuition, you may not realize that it can also help pay for other qualified school-related expenses such as fees, books, supplies, computer equipment, and room and board. Some room and board charges are quite high, so you may want to up your savings rate to cover eligible expenses beyond tuition costs.|
|Traditional College Expenses Plus More
Your 529 plan dollars can be used for traditional four- and two-year college expenses, accredited vocational and trade schools, as well as graduate and doctoral programs. If your child is thinking about obtaining a graduate or doctoral degree, you may wish to contribute more to your child’s 529 plan.
|Expecting? You Can Start Saving Now
If you have another child on the way, consider setting up a 529 plan for this child. You may even set up a new account prior to the child’s birth by listing yourself as the beneficiary, and then changing the beneficiary to your child’s name once he or she is born. Starting early with your 529 college savings plan means that your investments will have more time for potential growth. Investment returns are not guaranteed, and you could lose money by investing in a 529 plan.
Taxes on earnings are deferred while they remain in the plan and they can be withdrawn on a tax-free basis as long as they are used for qualified educational expenses.
|Protection in Bankruptcy
Has the volatile market caused severe financial distress for you and your family? If so, keep in mind that federal law provides creditor protection for 529 plans under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Deposits made up to two years prior to a bankruptcy filing are protected up to $5,000 per beneficiary. It’s important to note that the creditor protection for 529 plans provided by BAPCPA is not related to the creditor protection offered by state statutes. Furthermore, account owners who apply for protection may receive it from one of those two sources, but not both. Please consult your legal advisor for specific information.
|Family and Friends Can Help Save
When family members and friends ask about ideas for birthday presents and holiday gifts for your child, don’t forget to mention your child’s 529 savings plan. Contributing to your child’s college savings plan is a practical, meaningful gift that your child will appreciate into adulthood.
|More Than One Plan Can Be Established
A family member or friend may also establish a separate 529 plan for your child. For example, grandparents often opt to do this. As account owners, they can make decisions about the plan’s investments and beneficiaries. Possible estate tax benefits are associated with this option, which may be an attractive consideration. A tax expert should be consulted regarding details on this subject.
|Convenient Ways to Save
529 offers convenient saving options. You may make a single lump sum investment, send contributions in check form at any time, or save regularly through the 529 Automatic Investment Program.
Effective January 1, 2018, as part of the Tax Cuts and Jobs Act, up to $10,000 per student can be withdrawn annually to pay for private K-12 education.*
* Qualified-expense status varies by state for withdrawals used for K-12 education. Non- qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty.
Know the Rules
When you eventually take money out of a 529 plan to pay for qualified educational expenses such as tuition, room and board, books, and supplies or equipment required for enrollment or attendance at an eligible institution, you’ll pay no federal income taxes on these withdrawals (including any earnings).
To be clear, “eligible institution” refers to any college, university, vocational school, or post-secondary educational institution that is eligible to participate in a student-aid program administered by the U.S. Department of Education.
Any non-qualified withdrawals made are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty. Furthermore, such withdrawals may have state income tax implications.
If you have any questions about these rules, please talk with your financial advisor.
SMART529 is offered by the West Virginia Prepaid Tuition and College Savings Program Board of Trustees and is administered by Hartford Funds Management Company, LLC (“HFMC”).
Investments in SMART529 are not guaranteed or insured by the State of West Virginia, the Board of Trustees of the West Virginia College Prepaid Tuition and Savings Program, the West Virginia State Treasurer's Office, HFMC, The Hartford Financial Services Group, Inc., the investment sub-advisers for the Underlying Funds or any depository institution and are subject to investment risks, including the loss of the principal amount invested, and may not be appropriate for all investors.
The Hartford SMART529 is available to all investors. West Virginia (WV) provides certain tax advantages to WV taxpayers that invest in The Hartford SMART 529. Before investing, an investor should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 plan.
This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice.
Investors should carefully consider the investment objectives, risks and charges and expenses of SMART529 and its Underlying Funds before investing. This and other information can be found in the Offering Statement for SMART529 and the prospectuses or other disclosure documents for the Underlying Funds. Please read them carefully before investing or sending money. SMART529 college savings plans are distributed by Hartford Funds Distributors, LLC. Member SIPC
"The Hartford" is a registered trademark of Hartford Fire Insurance Company.
"SMART529" is a registered trademark of West Virginia Prepaid Tuition and College Savings Program Board of Trustees.
"The Hartford" is The Hartford Financial Services Group, Inc. and its subsidiaries.