The cost of college is going up, so people in Georgia who want to give their kids a head start might want to think about a 529 plan. There are some tax benefits to these college savings accounts, but they can be hard to understand.
Here, we will talk about how 529 plans work for people in Georgia, with a focus on the tax implications. If you live in Georgia and are thinking about getting a 529 plan, you should talk to a CPA in Jersey City to make sure you are getting all the tax breaks you can.
What is a 529 plan?
A 529 plan is like a special savings account that is only used for college costs. Like a savings account, the money you put in grows tax-free. But unlike payments from a savings account, those used for approved school costs are tax-free! This means that the money you save grows and can be used for college without any help from the government.
Federal vs. state tax benefits.
Even though gains from 529 plans are tax-free at the federal level, most donations are not tax-deductible at the federal level. However, people who live in New Jersey get a great perk!
Because of the New Jersey College Affordability Act, people who live in Jersey City and make less than $200,000 a year can now deduct payments they make to NJBEST, the state’s 529 plan, from their state income taxes.
This credit can lower your tax bill significantly, which makes saving for college an even better idea.
The power of tax-deductible contributions.
Let us look at how the tax credit in New Jersey can help you. Let us say you put in the highest amount of $10,000 per year into your NJBEST account. You can subtract this whole amount from your state taxes if your income is less than $200,000.
Depending on your tax rate, this benefit could help you save a lot of money on your taxes. Please keep in mind that these savings are on top of the tax-free growth of the money you put into the plan.
Some important things you need to think about.
Because 529 plans offer great tax breaks, it is important to know a few important things:
Expenses that qualify.
Withdrawals that are used to qualify for educational expenses like tuition, fees, and even room and board are not taxed. If you spend the money on something else, though, the earnings part will be taxed as income, and you will be fined 10%.
Effects of financial aid.
Even though 529 plans do not directly keep your kid from getting financial aid, assets in a parent-owned account are taken into account when figuring out your Expected Family Contribution (EFC) for aid reasons. Most of the time, having accounts owned by grandparents does not affect financial help.
The impact of early savings.
The power of compound interest is one of the best things about 529 plans. Your money has more time to grow if you start putting money away early.
Thanks to the magic of compound interest, even small, regular donations can add up over time. This means that starting a 529 plan for your child when they are young can make a big difference in how much college costs.
Get help from a professional today.
Residents of Jersey City can save a lot of money for college with 529 plans, which offer big tax breaks. You can get a tax break on your payments to these plans, and the money grows tax-free. This can help you reach your college goals.
Talk to a financial expert to find out if a 529 plan is right for your family and to learn about the NJBEST plan’s investment choices. Do not forget that starting to save early and using tax breaks can really help you pay for your child’s college.
