By
Reyna Gobel, U.S.News & World Report, Education, Jan 9th, 2013
For 10 years, Karen Austin, deputy treasurer for Iowa, considered going back
to school for her
MBA.
She didn't start a
529
plan, a tax-advantaged college savings account, for herself until recently.
Austin was saving for her children and wasn't concerned with saving for her own
education yet.
However, she's found a benefit to
saving
for college a semester at a time and then withdrawing the funds as needed:
state tax deductions. "I don't have the benefit of having long-term savings, but
I can get the tax benefits now," she says. She will be able to deduct about
$3,000 from her state income taxes this year because of her personal 529
plan.
[Check out
10
colleges with the most older students.]
Adults paying for college
using 529 plans should follow these savings tips.
1. Plan early, if possible: Parents shouldn't wait to start
a 529 plan until a child enters college—and the same applies to adults who plan
to return to school, Austin notes. For example, if an adult in Iowa contributes
$3,000 for the next 10 years, he or she could save $30,000 for schooling, nearly
tax free.
2. Carefully calculate costs: Adults generally don't have
room and board expenses; however, they may have
day-care
costs. It's important that older students talk to schools, Austin says,
particularly with the counselors handling returning students, about what
expenses they should expect.
The good news for adults is they may have tuition reimbursement programs from
their workplaces, says Ernie Almonte, chair of the American Institute of CPAs'
National CPA Financial Literacy Commission. An older student could deposit money
into a 529 plan, collect the tax deduction, and then get the money back from the
workplace at the end of the semester. It's important to consider all options for
college funding, he notes.
[Find out how to
utilize
workplace benefits for 529 plans.]
3. Review state tax deductions: Since adults returning to
school do tend to wait to save until they're within a year of starting a
program, state tax deductions and
matching
grant programs are the keys to determining whether it makes sense to save in
a 529 plan, Austin says.
American
University graduate Erin McRae deposited the maximum Maryland state tax
deductible amount in 2012 into her 529 plan. She withdrew the money the same
year to pay for tuition. "The tax break helps a lot when you're trying to pay
for grad school," McRae says.
However, a Florida-based adult who plans on attending college next year
wouldn't benefit from putting money in a 529 plan if he or she intends to use
the money in the same year, because there isn't a state income tax, Austin
notes. If immediate withdrawal is required, it's best to pay the university
directly in this case.
4. Use money from education tax benefits: Adults who
previously went to college may be paying student loan interest. Federal tax
refunds can be deposited into a 529 plan for future education, Almonte says—and
claiming the student loan interest deduction could add as much as $650 to a tax
refund.
Parents who are able to claim education tax credits from paying for their
children's education can use the maximum $2,500 received per child for their own
education, he says. Using the money in this way qualifies the funds for a state
tax deduction, too.
[Follow three
steps
adults returning to college must take.]
5. Get help from relatives: Family 529 plan gifts aren't
just for children, Almonte says. Parents, aunts, brothers, and sisters can
contribute to their adult relative's college savings account.
Ask
for funding for birthdays, holidays, or other special occasions, he
suggests.
In addition, adults may be able to use leftover funds from the accounts of
their children, nieces, or nephews, especially if those students received
scholarships. Assets in 529 plans are generally
transferable
among relatives tax free, Almonte notes.
Trying to fund your education? Get tips and more in the U.S. News Paying
for College center.
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