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Should You Tap into a 529 Saving Plan Before College?

Tax-advantaged 529 college savings plans aren’t just for college anymore: Such funds can now be used for kindergarten through 12th-grade tuition at private schools—up to $10,000 per child per year—as a result of the 2017 Tax Cuts and Jobs Act.

Not only do 529 plans provide federal tax-free growth and tax-free withdrawals for qualified expenses, but many states offer residents a full or partial tax credit or deduction for contributions to their state’s plan, and some states allow you to deduct contributions to any plan.

That said, not all states permit 529 plan spending on K–12 tuition expenses, so be sure to check your plan’s rules, lest you be subject to state income tax plus penalties.

Of course, tapping a 529 earlier than college may not make sense, even if permitted by state law. If you open a 529 account when a child is born, for example, and then use it a few years later to pay for kindergarten, the investment gains—and therefore the tax benefits—will likely be modest.

“It’s always good to have more options,” says Hayden Adams, CPA and director of tax and financial planning at the Schwab Center for Financial Research. “But the main advantage of 529s is their long-term potential for tax-free gains—to say nothing of saving for college itself—and both can be compromised if you begin drawing down the funds much earlier.”

What You Can Do Next

  • Balancing the competing goals of saving for college and retirement can be a challenge. A Certified Financial Planner professional can help you develop a comprehensive financial plan that addresses all of your savings goals when you enroll in Schwab Intelligent Advisory. Get started today.
  • Learn more about Schwab’s 529 College Savings Plan.
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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

This information is not intended to be a substitute for specific individualized tax-, legal- or investment-planning advice. Where specific advice is necessary or appropriate, Schwab recommends consulting with a qualified tax advisor, CPA, financial planner, or investment manager.

Schwab Intelligent Advisory™ is made available through Charles Schwab & Co., Inc. (“Schwab”), a dually registered investment adviser and brokerdealer.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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