It’s time to contribute to your 529 plan, and don’t wait until 12/31, do it NOW!
Contributing to a 529 plan before December 31 offers several benefits, primarily revolving around tax advantages, strategic financial planning, and supporting educational goals.
Tax Deductions/Credits
Kansans are eligible for state income tax deductions or credits for contributions made to a 529 plan. Be sure to maximize these deductions for the current tax year, effectively reducing your taxable income.
If you live in Kansas, and are single, you can deduct up to $3,000 per year from your adjusted gross income for contributions to a 529 plan. For those who are married, filing jointly, you can deduct up to $6,000. This deduction applies to contributions to any 529 plan, including Kansas’s own Learning Quest 529 plan, as well as plans sponsored by other states.
Kansas is a tax parity state, which means that you can deduct contributions to any state’s 529 plan from your Kansas state income taxes.
Give Your 529 Plan a Boost
It’s always a good idea to boost your contributions before the close of the year, so your investment in education will have more time to grow. Compounding will ensure that contributions made now can yield greater returns over time
Make Note of Annual Gift Tax Exclusion Limit
Contributions to a 529 plan count as gifts for tax purposes. You can gift up to the annual exclusion limit without incurring federal gift taxes. Contributing before December 31 ensures you can utilize this tax-free gift giving for the current year. Because gift tax exclusion limits are ever-changing, consult with us at Adams Accounting Solutions to find out what the annual limit is for your situation.
Significant Contribution this year?
If you’re planning on contributing a significant amount to a 529 plan, you may want to take advantage of 5-year gift tax averaging. This allows you to contribute up to 5 times the annual exclusion limit in one year without incurring gift tax, essentially spreading it over five years. Contributing by year-end allows you to start this process sooner, so get in touch with the professionals at Adams Accounting Solutions to strategically align your contribution without incurring gift tax.
Good For You
Pat yourself on the back for funding your 529 plan(s). By making timely contributions, you’re proactively preparing for future educational expenses for your children, grandchildren, or other beneficiaries. This can provide peace of mind knowing that you’re systematically working towards covering the costs of education, thus avoiding future financial stress.
Grandparent Loophole
If you’re contributing to a 529 plan for grandchildren, be aware of the FAFSA Simplification Act which greatly simplified the frustrating FAFSA form used when applying for student aid. This act represents a significant overhaul of the processes and systems used to award federal student aid beginning with the 2024-25 award year and notably lets grandparents with 529 accounts take advantage of the “grandparent loophole” to fund a child’s education without derailing their financial aid application.
Contributing to a 529 plan before December 31 is a smart financial strategy that not only provides immediate tax benefits but also strengthens your long-term educational savings plan. It’s a proactive measure that can yield extensive benefits, helping you support the educational aspirations of your children or grandchildren while securing financial advantages for yourself.
Contact Adams Accounting Solutions today to take advantage of this benefit!
Richard Adams is a graduate of Benedictine College in Atchison, Kansas, with dual majors in Accounting and Business Administration. He is also a graduate of Wentworth Military Academy in Lexington, Missouri.