Dispelling 5 myths about Arizona’s 529 Education Savings Plan

Arizona State Treasurer Kimberly Yee

Submitted photo/Christopher Barr

As Arizona’s treasurer and administrator of the state’s AZ529 Education Savings Plan, I help expand opportunities for all Arizona families to access higher education, whether it is for traditional college, vocational training or even apprenticeship programs.

In honor of National 529 Day, May 29, I want to address five common myths that might keep people from efficiently saving for their children’s futures through the plan.

It’s never too early and certainly never too late to start saving for higher education expenses.

The national student loan debt has hit $1.77 trillion, and surveys indicate that 26% of parents are not saving for their child’s future education. Studies also show that 6 out of 10 parents are not utilizing 529 Plans, though they’re the most simple and beneficial investment vehicle for education savings. Families that utilize 529 Plans save approximately 25% more than those who do not use these savings vehicles.

It is important to recognize factors that might be holding families back from opening a 529 Plan. Here are five myths, dispelled:

1. Savings must be used for in-state tuition or at a four-year college: AZ529 funds may be used at accredited public and private colleges, universities, community colleges, technical training schools and apprenticeship programs in any state. AZ529 savings can be used to pay for a variety of higher education expenses, including tuition, fees, books and even internet access.

2. It’s a use it or lose it account: You don’t lose the funds if the child you designated decides not to go to college. Leftover funds can be transferred to another family member without penalty. Families may also transfer qualified leftover 529 funds, (up to $35,000) into the account beneficiary’s Roth IRA retirement funds, free of any tax, penalty or applicable income limits.

3. It will harm my student when applying for financial aid: There is little to no impact on financial aid eligibility for a student with a 529 Plan. For state financial aid, the balance in a 529 account will not be treated as income of the parents, nor of the student when determining financial need.

4. Only parents can open accounts for their children: Anyone 18 and older can contribute to or open an AZ529 Plan and receive the tax benefits for their contributions. Grandparents, aunts and uncles and even friends can contribute to a 529 Plan. An individual can even open their own AZ529 Plan and save for themselves.

5. 529 Plans are only for families with lots of money: The AZ529 Education Savings Plans are for everyone, regardless of income level. You can contribute as little as $15 a month and savings will grow tax-free over the years. Plans can be customized and created for those who want to keep the account simple or for the more experienced investor.

Arizona’s Education Savings Plan is a tax-advantaged investment plan designed to help families save for a child’s future education expenses. Savings in an AZ529 plan are free from federal income tax, and withdrawals remain tax-free when used for qualified education expenses.

Plan contributions can be deducted from Arizona state income taxes up to $4,000 per beneficiary for a married couple filing jointly, or up to $2,000 per beneficiary for single filers. There is no limit on the number of beneficiaries you can file for each tax deduction.

On National 529 Day, my office proudly celebrates education savings by surprising a family in Arizona with a special gift. During this time last year, we presented first-time parents and their newborn baby with $529 toward an AZ529 Education Savings Plan. As the new parents received this surprise gift and the newborn in their arms, it was a remarkable experience to see the family overwhelmed with joy and emotion.

The gift of a 529 Plan is more than just a financial contribution. It is a long-term investment toward a loved one's future that will last a lifetime.

For more information, planning tools and resources, visit www.AZ529.gov.

Editor’s note: State Treasurer Kimberly Yee is administrator of the AZ529 Education Savings Plan and chairs the Arizona Financial Literacy Task Force. Please send your comments to AzOpinions@iniusa.org. We are committed to publishing a wide variety of reader opinions, as long as they meet our Civility Guidelines.