Ways to minimize your tax bill: Understanding how Future Scholar can help you save even more
You know that 529 college savings plans like Future Scholar were designed to provide tax benefits. But how well are you plugged into the specific ways a 529 plan can benefit you?
For starters, South Carolina is one of only a few states that will allow the account contributions you make right up until this year’s tax deadline to be deducted from your 2022 state income taxes.
Let’s look at some of the other benefits that will help your money work smarter.
Tax savings on top of college savings
Because contributions to Future Scholar can are deductible on your state income tax, you save even more when you use a 529 account to put money aside for college. What does that look like?
South Carolina’s top income tax rate — for single filers with taxable income over $20,200 – is 6.5 percent. For these South Carolinians, contributions to Future Scholar mean they recoup 6.5 percent of the amount they’ve saved in a year when they file their taxes.
Deposits and withdrawals on your schedule
While some people may compare the way Future Scholar works to a retirement plan for education, there’s one important difference. With Future Scholar, funds can be used almost immediately.
For example, a grandparent contributes money today, and the beneficiary can use it to pay upcoming college expenses. As an added bonus, grandparents who are South Carolina residents get a break on their state income tax.
Qualified expenses: K-12 tuition and more
When you understand all the qualified education expenses, you may find even more opportunities for cutting your tax bill. Did you know Future Scholar savings can be used to pay K-12 school tuition, up to $10,000 per beneficiary per year?
That means a family with two children in private school can contribute $10,000 to each child’s Future Scholar 529 plan, then withdraw $20,000 for the children’s tuition and deduct that amount on their state income taxes.
Future Scholar’s flexibility doesn’t stop at K-12 tuition:
- The education costs associated with accredited technical schools and graduate programs, as well as registered apprenticeship programs, are also qualified expenses.
- Up to $10,000 of Future Scholar savings can be used to pay student loan debt.
- Savings can be used to cover expenses such as laptops, books, housing and meals.
When you use your contributions for qualified expenses, you’re eligible for the income tax deduction, no matter how long the money has been in your account.
The easy way to start saving more
Becoming an account holder isn’t limited to parents. Any adult can open a Future Scholar account to benefit a child or themselves.
The contribution per beneficiary limit is high in South Carolina, capped at $540,000, and the only requirement for tax-free withdrawal is that Future Scholar savings be used for qualified education expenses. If not used for qualified education expenses, a 10 percent penalty is charged for the funds withdrawn.
Future Scholar was designed to make it easy to start saving for a child’s education. Accounts can be opened online in minutes with whatever amount you choose. Gifting options are a convenient way to reach out to friends and family and invite them to contribute for birthdays, holidays, and special occasions. Learn more here about starting a Future Scholar 529 college savings plan and how to take advantage of the tax savings it delivers.