If you are exploring options that you can use to assist you in paying off your student loans, you may want to consider using a 529 plan. These plans were first established in 1986 and have since evolved to meet a variety of educational needs. Student loans can be a heavy burden to bear, which is why it is important to pursue alternative options that may help you alleviate that burden.

If you or a family member are interested in learning about 529 plans, our California tax planning services can assist you. The accountants at Cook CPA Group have decades of combined tax experience that will be used to help you meet your unique tax goals. Our firm is here to explain whether you can use a 529 account to pay student loans in California.

What is a 529 Plan?

A 529 plan is a savings plan that offers favorable tax advantages to assist with educational costs. These plans are typically funded by a state, an educational institution, or a state agency and are usually established for a future or current student. 529 plans can be divided into two separate categories: prepaid tuition plans and education savings plans.

A prepaid tuition plan allows the plan holder to buy credits at certain colleges and educational institutions that can later be used to pay for tuition and other education-related fees. The schools that participate in 529 plans are typically publicly funded institutions. There are certain expenses that prepaid tuition plans cannot fund. For example, you cannot use a prepaid 529 plan to pay for dorm expenses at a university.

It is important to note that if the beneficiary of a prepaid tuition plan does not attend a college that acknowledges a 529 plan, the plan may pay out less money than if the beneficiary attended a participating college.

An education savings plan is an investment account that is utilized to handle the beneficiary’s higher education needs. This includes expenses like tuition, lodging, and other fees. Education savings plans are usually acceptable at American colleges and possibly some colleges outside of the United States. These plans can also be used to fund a maximum of $10,000 per beneficiary that can be used for tuition at elementary or secondary schools.

To learn more about how 529 accounts operate, you should speak with an experienced Roseville accountant today.

How to Establish a 529 Account in California

California has one 529 plan that you can establish known as ScholarShare. This plan does not require the plan holder to reside in a certain state and allows the following people to open a plan:

  • S. citizens
  • Resident aliens that are at least 18 years old
  • Emancipated minors
  • UGMA/UTMA custodians
  • Other legal entities

There are two types of 529 plan accounts that you can open: individual accounts and custodial accounts. An individual account is typically created by a parent for the benefit of their child. These plans are favorable because they allow various family members to contribute to the plan, like aunts, uncles, grandparents, and other relatives. Contributions to a 529 account could be made in several ways. For example, you could schedule payments from your bank account or deposit money via paper checks.

Individual accounts usually only require one parent to be the account holder. If possible, it would be wise for the account holder to be the child’s biological parent.

If you are using money from a custodial bank or brokerage account to finance a 529 plan, it is advantageous to open a 529 custodial plan. A custodial 529 allows the child to serve as the plan holder and the beneficiary. While the child may be the account holder, a custodian will control the account until the beneficiary reaches the age of majority. It is important to note that once established, the beneficiary for a custodial 529 plan cannot be altered.

To open a 529 plan, you need to possess the following information:

  • The identity of the plan holder
  • The name of the beneficiary of the plan
  • Mailing address, telephone number, email, DOB, taxpayer identification number, or Social Security Number of the account owner and the beneficiaries
  • Successor to the 529 account owner if the former owner passes away

California Financial Service Accountants Can Help You Open a 529 Plan

If you need to establish a 529 plan for the benefit of your child, our California financial service accounts are here to help you. At Cook CPA Group, we are dedicated to providing you with tax planning services that are tailored to help you give your child with the education they deserve. To discuss 529 plan options, contact Cook CPA Group at (916) 260-2323 for a free consultation or contact us online.