Taxes can significantly erode the value of a college fund. With a 529 plan, investment earnings and withdrawals are tax free when used to pay qualified higher education expenses.* In addition, 529 plan contributions are tax deductible in many states. Key takeaway: In this example, the 529 plan is worth nearly $48,000 more than a taxable account earning the exact same investment returns. Families in higher tax brackets may benefit even more.
* Earnings on federal non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. New York State tax deductions may be subject to recapture in certain additional circumstances such as rollovers to another state’s 529 plan, or withdrawals used to pay elementary or secondary school tuition (“K-12 Tuition Expenses”), registered apprenticeship program expenses (“Apprenticeship Program Expenses”), or qualified education loan repayments (“Qualified Education Loan Expenses”) as described in the Disclosure Booklet and Tuition Savings Agreement. State tax benefits for non-resident New York taxpayers may vary. Tax and other benefits are contingent on meeting other requirements. Please consult your tax professional about your particular situation.