529 plans are flexible, tax-advantage savings accounts primarily used for college education. Learn how these accounts can also be used for law school.
Starting a college savings plan often seems like a good idea to families planning for their child’s future, but because these plans often start when a prospective student is still in their infancy, it can be tough to cover every contingency. As one of the most popular savings options for families across the U.S., the 529 plan is frequently considered by those looking to cover the cost of higher education, but – as effective as they are at building up funds for education – 529 plans do come with certain restrictions on how the assets in the account are used. Whether you’re a parent looking to offer a range of opportunities to their child or someone planning for a specific goal, you might be wondering, “Can 529 plans be used for law school?” To find out, keep reading as we address this common query.
Like other types of investment accounts, a 529 plan can be accessed at any time by the account owner, but (also like other investment accounts) there may be a penalty for doing so if the funds are not put toward a “qualified distribution” – the IRS term for an expense covered under your 529 plan. If you or a loved one is planning to become a legal professional, you’d probably like to know if law school is counted as a qualified distribution for 529 plans.
Fortunately, 529 plans can be applied to a variety of education-related expenses, including graduate school, medical school, and law school. To use the funds in your account for this purpose, simply submit a request for a withdrawal to your plan administrator and make it payable to either the beneficiary of the account or the educational institution where they will be enrolled.
Any family looking at college savings options will be faced with a wide variety of financial tools, from the humble savings account to more complicated investment plans. In our opinion, what makes 529 plans stand out among these choices are the numerous 529-specific benefits available for contributors, account owners, and beneficiaries.
If your loved one is planning to attend law school, the tax-free growth available through 529 plans can go a long way toward covering the hefty price tag that comes with enrollment at a top school. By investing early in a child’s life, an account owner can watch their contributions – and those of friends and family – grow significantly over the years, and because law school often follows four years of undergraduate study, there’s even more time for the balance of an account to build.
Two of the three types of 529 plans – education savings plans and ABLE accounts – can even be used for things like housing costs, books, and essential equipment, further reducing out-of-pocket payments and student debt for families already facing a huge tuition bill. These costs are covered in addition to tuition and mandatory fees at most colleges and universities.
And while the tax breaks afforded to 529 plan investments are powerful in their own right, many states improve upon those advantages with tax deductions and credits for contributions to particular 529 plans; most states only offer these benefits for contributions to their own program, but seven states – Arkansas, Kansas, Minnesota, Arizona, Missouri, Pennsylvania, and Montana – offer a tax break for contributions to any 529 plan in the country. In a few cases, these deductions and credits are only available to the account owner, but many states allow any contributor to benefit (further incentivizing family members to give to your 529 plan for holidays, graduations, and other big celebrations).
Although most people with 529 plans will use their account to pay for college, it’s not just future law school or med school students who can benefit. With the passage of 2017’s Tax Cuts and Jobs Act, 529 plans can also be put toward a number of additional education-related expenses, such as private elementary school or high schools, trade or vocational schools, and apprenticeships.
In all, there are more than 100 529 plans offered around the country, since each state is free to create one or more unique programs. This wealth of options opens up many possibilities for families, but it also makes it difficult to choose the right account.
When comparing 529 plans for law school, consider the factors that set these plans apart from one another. One of the biggest of these factors is the performance history of a plan, as some have provided greater returns than others over the years. Fees are also a major factor, as a plan with high fees could lead to fewer earnings in the long run.
Keep in mind that, while many 529 plans offer age-based portfolios, these investment options typically become very conservative around the time a student turns 18. If your child is considering law school, you might want to choose a plan with slightly more aggressive options or effective static investments to maximize returns during those four undergrad years and provide the greatest possible balance to cover law school tuition.
Given the many rules surrounding the use of 529 plans, you might assume that opening or managing a plan is an arduous endeavor, but that’s not necessarily true. By downloading the free Sootchy app to your mobile device, you can start your own plan in less than 20 minutes, then manage your investments with a touch of a button or invite your loved ones to contribute to the plan. Learn more about how a 529 plan could help you pay for law school by visiting us online today.