Author: Deborah Goodkin, Managing Director, Savings Plans, First National Bank of Omaha
The year-end is an important time to review your NEST 529 account and ensure you’re getting the most out of your college savings plan before ringing in the New Year.
What are the benefits and ways to maximize your 2018 savings? Read on.
Watch your savings grow tax-deferred
One of the greatest advantages to investing in a NEST 529 account is that contributions grow federally and state tax-deferred, ensuring that account owners get the most out of every dollar they save. Even better, when the time comes to use the funds in a NEST 529 account, withdrawals used for qualified educational expenses such as tuition, room, board and more are tax-free.
Save on state income tax
In addition to tax-deferred growth and tax-free withdrawals, investing in a NEST 529 account can also have significant state income tax benefits. Account owners in Nebraska are eligible for an annual state income tax deduction of up to $10,000 for NEST 529 contributions, or $5,000 per spouse if filing separately.
To take advantage of the Nebraska state income tax deduction this year, your contribution must be submitted online or postmarked by December 31st before 10:59pm CT, as well as reported on your Nebraska state income tax return.
New to Nebraska? Funds rolled over into a NEST 529 account from an out of state 529 plan are also eligible for the Nebraska state income tax deduction, so consider transitioning your current 529 accounts to NEST 529 to maximize your savings.
Account owners living outside of Nebraska have options as well—offer a tax benefit even if account owners are investing in another state’s plan. Consult with a financial advisor or tax professional to determine your eligibility for state tax benefits.
For account owners who plan on making a big contribution this holiday season, keep in mind that for tax purposes, 529 contributions are considered gifts to the account beneficiary. However, contributions also qualify for the annual gift-tax exclusion, which is $15,000 per person or $30,000 if filing jointly in 2018. This gives account owners the ability to make significant contributions to their college savings without triggering a gift tax.
Account owners who want to contribute more than $15,000—and up to $75,000 ($150,000 for married filing jointly)—can contribute the full sum immediately while spreading the gifted amount of $15,000 ($30,000 married filing joint) equally over five years. This allows account owners to avoid the gift tax while also removing the sum from their taxable estate. It is important to note that in Nebraska your annual state income tax deduction is still capped at $10,000, and those larger contribution amounts will not count toward future years’ tax deductions.
The holiday season is a time to rest and reflect on the many joys in our lives. Watching our children, grandchildren and other loved ones grow up and achieve their academic dreams is one of the greatest joys of all. As we approach the end of the year, make sure to maximize your NEST 529 savings, so that your loved ones have the support they need to thrive and fulfill their higher education goals.
For any questions regarding your account, contact the NEST 529 team at firstname.lastname@example.org or by calling 1-888-993-3746.