Wednesday is National 529 College Savings Plan Day – but you might want to think twice before celebrating.
The 529 plans are widely perceived as an incredibly helpful tool for families attempting to save for the mounting cost of a college education. In fact, 2018 was a record year for these savings plans, with 44 percent of parents utilizing a 529 account for college savings.
In 2018, there were 13.6 million 529 savings accounts in the U.S. and the average size of an account was $24,153. Total investments in 529 plans reached $328.9 billion.
The rising popularity of these plans for college savers is no surprise, given that earnings in a 529 plan grow federal tax-free and are not taxed when the money is taken out to pay for the beneficiary’s education. On top of the federal tax exemption, over 30 states offer a full or partial tax deduction for 529 plan contributions.
So, this must mean that 529 plans are essentially tax-free, right?
The financial transaction tax (FTT), which is championed by several congressional Democrats, would place a tax ranging from 0.05-0.1 percent on all equity, debt and derivatives trades transacted in the United States.