Arizona Grows Education Savings Accounts To Over 47K
By Staff Reporter |
Arizona grew the number of Education Savings Plan (or “AZ529”) accounts to nearly 47,600 over the last four years.
Arizona Treasurer Kimberly Yee reported that assets of those accounts increased nearly 50 percent to $2.4 billion within the last four years.
AZ529 accounts allow parents, grandparents, or future students to take a tax-advantaged approach to saving for their educational expenses. Those opening the accounts also don’t need to be related to the beneficiary, and they may accept gifts to these accounts from others.
The opening cost for an AZ529 account starts with investments as low as $15 monthly and no application fee, with plan providers going up to $25 and $150.
AZ529 savings may be used at most accredited public or private universities, colleges, community colleges, technical and vocational schools nationwide, or apprenticeship programs, and even certain foreign institutions.
Qualified educational expenses include tuition and fees; books, supplies, and equipment; public, private, or religious K-12 school tuition for up to $10,000 per year; and up to $10,000 in student loan repayments.
Under these accounts, distributions are exempt from Arizona income tax and federal income tax. AZ529 received Morningstar’s 2023 Silver Rating.
Not only are the distributions tax-exempt, but contributions are tax deductible. Arizona allows AZ529 contributors to receive deductions of up to $4,000 per beneficiary for married tax filers who file a joint return and $2,000 per beneficiary for individual tax filers.
AZ529 plans must be funded by December 31 of this year to be eligible for deductions on 2024 taxes.
Arizona offers two financial institutions for AZ529 plans: Fidelity Investments and Goldman Sachs 529 Plan. The former allows for personal account opening, while the latter allows for personal or financial advisors to open accounts. Both have contribution limits of $590,000.
AZ529 also offers an annual essay writing contest, with hundreds of dollars in rewards offered. This past year, 20 students won over $500 toward their AZ529 accounts out of the over 600 who participated.
This year, the state began allowing certain “leftover” AZ529 funds to be transferred to a Roth IRA free of any tax, penalty, or applicable income limits for the first time. Qualifying AZ529 accounts have been maintained for a minimum of 15 years under the same owner and same designated beneficiary, and the amount transferred must also have been contributed at least five years prior to the transfer and the aggregate lifetime limit for rolling over is $35,000.
Or, account owners have the option to change the name of the beneficiary to another. In the event that the beneficiary receives a scholarship, becomes disabled, or dies, the account owner may withdraw the assets in the account without incurring the 10 percent federal tax penalty normally issued for non-qualified withdrawals.
Congress created 529 plans in 1996, officially known as “qualified tuition programs.” AZ529 plans are the state of Arizona’s version of these programs.
Federal financial aid programs may take up to about six percent of the AZ529 account balance into consideration as a parental asset when determining eligibility for need-based aid.
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