529 plans are a great way to save for your education, but can these benefits be applied to medical school? Learn more from the Sootchy 529 experts.
Regardless of the field of study, college is often one of the greatest expenses in a person’s lifetime, but few forms of higher education carry a price tag to match that of medical school. Attendees at the country’s top med schools must often pay $60,000 or more per year, and many curriculums run for four or five years – in other words, paying for medical school can be a daunting task, to say the least. Many future doctors finish their education with hundreds of thousands of dollars in debt, making it difficult to have a life until well after their residency has finished due to constant loan payments. To help mitigate this debt and give their children the chance to become successful healthcare professionals, many parents turn to popular college savings options like 529 plans, but can you use a 529 plan to pay for medical school? To find out, keep reading as the experts at Sootchy explain.
Though they come with many benefits, 529 plans also impose some severe restrictions on how the money in these accounts is used, so it’s reasonable to wonder whether medical school, specifically, is counted as an acceptable expense for 529 plans. Because these accounts are meant to cover the cost of education, all forms of higher ed are considered qualified distributions, including graduate degrees and med school programs. And depending on the type of 529 plan you have, you might even be able to pay for tangential expenses like books, computers, and room and board.
There may, however, be restrictions on how you can use your 529 plan for medical school. Prepaid tuition plans, one of the types of 529 plans, often require that funds be spent on an in-state school, a provision that can affect whether your 529 plan will cover your med school of choice. Be sure to check the policy on the plan you’re considering to see if it will allow access to the schools your child might one day attend.
Now that you know you can likely use a 529 plan to pay for medical school, you might be wondering why you should utilize this particular type of savings account. Of all the benefits of a 529 plan, perhaps the most important to note are the tax advantages that come with one of these accounts. Like other kinds of investment plans, 529 plans can generate significant growth over time, adding to the money you’ve put toward your child’s education, but unlike most common investment account, a 529 plan can generate returns without incurring federal income tax, as long as the money is spent through qualified distributions (generally, those related to higher education). These untaxed earnings can go a long way toward making medical school more affordable, especially if a plan is started early in a child’s life, giving it time to grow.
Depending on where you live, your 529 plan may also come state income tax deductions or credits for contributions to the plan, and these accounts offer some estate tax advantages as well – namely, that they can remove assets from your estate without forcing you to surrender control of those assets. In addition, many 529 plans make it easy for relatives to donate to the account, and each person can give up to $15,000 per year before triggering the federal gift tax. Account owners can shop around and choose almost any one of the various plans offered by the states, so you have plenty of options to choose from when saving up for medical school.
In addition to savings options such as 529 plans, many med school students rely on financial aid from either the federal government or educational institutions to help pay for their program, and since much of this aid is based on a family’s assets and level of financial need, 529 plans may seem like something that could limit a student’s ability to receive aid. In truth, 529 plans often factor into federal financial aid decisions, but some plans have very little impact, while others can greatly affect a student’s aid application; it all comes down to who owns the account.
If you are a parent with a 529 plan for which your child is the beneficiary but not the owner, there’s good news: You’re already set up for minimal impact on your child’s financial aid. The first $10,000 in a 529 plan plays no role at all in aid decisions (at least, not at the federal level), and after that, only 5.64% of the plan’s balance will be factored into a family’s assets, as long as it’s owned by a parent. If that account is in a student’s name, however, then 20% of the balance will be considered, and account owned by a non-parent relative, such as an aunt or uncle, can add up to 50% of their value to a family’s perceived assets, though that money is only considered once it’s paid out to the student. In other words, your 529 plan shouldn’t be much of an issue when applying for aid, so long as it’s in a parent’s name.
Whether it’s your child, niece, nephew, cousin, or grandchild who’s going off to medical school, a 529 plan can make a big difference in their final debt. To start a 529 plan today, visit Sootchy online or download our app, and our team of experts will guide you through the process.