5 Things You Need to Know About the NC 529 Plan

Thursday, March 16, 2023

North Carolinians have more than $3 billion invested in education in NC 529 Accounts. As you may know, the NC 529 Plan is a way for families to save money for education expenses with several tax advantages. If you've not yet started saving for a child's future with the NC 529 Plan, here are five key things to know.

1. It's Tax-Advantaged

You may have heard that money in an NC 529 Account grows tax-free. That's right! As long as you use the funds to pay for qualified education expenses, the investment earnings won't be touched by federal taxes. In North Carolina, NC 529 Account earnings are also free from state taxes when used for qualified education expenses, and the list of qualified expenses is pretty long! We make it simple to use every penny you invest without paying taxes.

"Unlike many other options for saving for education, the NC 529 Plan allows families to invest money over time and benefit from any earnings without having to pay taxes on the increased value of their funds," said Laura Morgan, Vice President of Communications, Savings, and Legal Affairs at College Foundation, Inc. (CFI). "The tax benefits are one of the most important reasons families choose to save with NC 529."

When a parent or loved one opens an NC 529 Account, they can choose from a selection of investment options that range from conservative to aggressive, and age-based or individual options, to help families reach their financial objectives.

2. It's Money for Education

The key to maximizing the benefits of an NC 529 Account is to make qualified withdrawals for education expenses. There are so many ways to use the funds that most families are never faced with taking a nonqualified withdrawal. Similar to how a Health Savings Account (HSA) is money earmarked for certain health expenses, the funds in NC 529 Accounts can be used for a wide range of education expenses. This means that K-12 tuition, college expenses including room and board, student loan payments, apprenticeship programs, and more can be paid for out of the NC 529 Account.

3. It's Not Just for College

While college or grad school are popular reasons to open an NC 529 Account, K-12 education and apprenticeships may also be an educational expense for a family. The great news is an NC 529 Account can be used for more than just traditional college costs.

Qualified withdrawals can be used for things like trade schools and apprenticeship programs, K-12 tuition, special needs equipment, and more. Whether your child attends a two-year college, four-year university, or training program, NC 529 Account funds can help cover the costs.

4. It Can Be Rolled Over for Retirement

Starting in 2024, unused funds in an NC 529 Account can be rolled over into a Roth IRA for the beneficiary.

For example, if your child chooses not to pursue higher education, the funds within their account can still be theirs for retirement. The NC 529 Account must have been open for 15 years, and the funds must be rolled over to the beneficiary's Roth IRA.

"While it's not often the case, we know that families worry about over-investing and leaving unused funds in their NC 529 Account. We're thrilled that the Secure 2.0 Act will allow people who have leftover funds in their NC 529 Accounts to use that money for retirement," said Morgan. "This is another huge benefit for parents and students and can set up future generations for success throughout their lifetime."

5. Anyone Can Contribute

One of the best features of NC 529 Accounts is that anyone to contribute to them. Children are certainly not raised alone, and paying for college does not have to fall on just one pair of shoulders.

Grandparents, aunts and uncles, friends, and other loved ones can contribute to an account with a few clicks. It's easier than ever for anyone to help families save for education costs with NC 529's new gifting links. Account owners simply log in to create a unique gifting link to be shared with friends and family who can help crowdfund birthday or holiday gifts, or just because.

The benefits of the NC 529 Plan make it an exceptional education investment option for North Carolina families. To learn more, visit the website.