529 for Graduate School: Your Ultimate Guide

Graduate school is a major investment, both financially and personally. With the average cost of tuition and fees for a graduate degree at a public university exceeding $25,000 per year, and at a private university exceeding $50,000 per year, it's important to make sure you're making the most of your investment.

The 529 plan is a tax-advantaged savings plan that can help you save for future education costs. Here's everything you need to know about 529 plans for graduate school:

What is a 529 plan?

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. Contributions to a 529 plan are made on an after-tax basis, but earnings grow tax-free and withdrawals are tax-free when used to pay for qualified education expenses.

Who is eligible for a 529 plan?

Anyone can open a 529 plan for themselves or for a beneficiary, such as a child or grandchild. There are no income limits to contribute to a 529 plan.

What are the benefits of a 529 plan?

There are many benefits to saving for graduate school with a 529 plan, including:

• Tax-free earnings: Earnings on 529 plans grow tax-free, which can help you save more money for graduate school.
• Tax-free withdrawals: Withdrawals from a 529 plan are tax-free when used to pay for qualified education expenses, including graduate school tuition and fees.
• No income limits: There are no income limits to contribute to a 529 plan.
• Flexible investment options: 529 plans offer a variety of investment options, so you can choose the one that's right for you.
• Gift tax benefits: Contributions to a 529 plan are considered gifts for tax purposes. This means that you can give up to $15,000 per year to a 529 plan without having to pay gift tax.

How do I open a 529 plan?

You can open a 529 plan through a state or a financial institution. Each state offers its own 529 plan, and there are also a number of national 529 plans available.

When choosing a 529 plan, there are a few things you should consider, including:

• Investment options: Make sure the 529 plan offers investment options that meet your needs.
• Fees: Compare the fees of different 529 plans before choosing one.
• State tax benefits: Some states offer state tax deductions or credits for contributions to a 529 plan.

How much should I contribute to a 529 plan?

The amount you contribute to a 529 plan depends on a number of factors, including:

• The cost of graduate school: The cost of graduate school varies depending on the school you attend and the program you choose.
• Your other savings: You should also consider your other savings goals, such as retirement and emergency savings.
• Your income: Your income will determine how much you can afford to contribute to a 529 plan.

Here's a quick and dirty way to estimate how much you should save for graduate school:

1. Determine the total cost of graduate school, including tuition, fees, and living expenses.
2. Multiply the total cost by 0.7 to account for the fact that 529 plan earnings grow tax-free.
3. Divide the result by 18 to get the annual amount you should save for graduate school.

For example, if the total cost of graduate school is $100,000, you should save $3,889 per year for graduate school.

What are the risks of investing in a 529 plan?

The main risk of investing in a 529 plan is that the value of the investments can go down. This means that you could lose money on your investment. However, the risk of losing money on a 529 plan is relatively low, especially if you invest in a diversified portfolio of investments.

Is a 529 plan right for me?

A 529 plan is a great way to save for graduate school. However, it's important to consider your individual circumstances before deciding if a 529 plan is right for you.

If you're not sure if a 529 plan is right for you, you should talk to a financial advisor.

FAQs about 529 plans for graduate school

1. Can I use a 529 plan to pay for graduate school at any school?

Yes, you can use a 529 plan to pay for graduate school at any school in the United States.

2. Are there any restrictions on how I can use the money in a 529 plan?

The money in a 529 plan can only be used to pay for qualified education expenses. This includes tuition, fees, books, and other expenses related to attending school.

3. What happens if I withdraw money from a 529 plan for non-qualified expenses?

If you withdraw money from a 529 plan for non-qualified expenses, you will have to pay income tax on the earnings and a 10% penalty.

4. What happens if I don't use all of the money in a 529 plan?

If you don't use all of the money in a 529 plan, you can roll the money over to another beneficiary, such as a child or grandchild.

5. Can I change the beneficiary of a 529 plan?

Yes, you can change the beneficiary of a 529 plan at any time.

6. Can I contribute to a 529 plan for myself?

Yes, you can contribute to a 529 plan for yourself. However, you cannot take advantage of the state tax deductions or credits for contributions to a 529 plan for yourself.

7. Are there any other ways to save for graduate school?

In addition to 529 plans, there are a number of other ways to save for graduate school, including:

• Employer-sponsored savings plans: Some employers offer savings plans that can be used to save for graduate school.
• Scholarships and grants: There are a number of scholarships and grants available to help students pay for graduate school.
• Student loans: Student loans are another option for financing graduate school. However, student loans should be used as a last resort, as they can be expensive.

Conclusion

A 529 plan is a great way to save for graduate school. However, it's important to consider your individual circumstances before deciding if a 529 plan is right for you. If you're not sure if a 529 plan is right for you, you should talk to a financial advisor.

Tables

Table 1: State Tax Deductions and Credits for 529 Plans

Table 2: Investment Options for 529 Plans

Table 3: Fees for 529 Plans

Table 4: Estimated Savings for 529 Plans