529 Plan

The company offers a CollegeAmerica 529 plan through American Funds. 529 plans allow you to save money in a tax-deferred account for higher education: undergrad, graduate, professional or vocational. Our plan allows for deductions to be made directly from your paycheck and deposited into you 529 account. Our plan does not accept outside checks.

Similar to a Roth, contributions to a 529 plan are made with after-tax money deducted directly from your paycheck. Your investment grows tax-deferred, and distributions to pay for the beneficiary’s college costs come out federally tax-free (meaning you avoid federal tax on the growth.)

You select a beneficiary when you open the account. The beneficiary can be anyone- your child, grandchild, niece, yourself. You can change the beneficiary in the future (if your child lands a full scholarship or decides school isn’t the thing for them.) But the new beneficiary needs to be related to the original beneficiary in order to avoid penalties.

You can open multiple 529 accounts each with a different beneficiary and contribute separately to each of them. 529 plan contributions are considered to be gifts, and so annual contributions are typically limited to the gift tax exclusion amount ($15,000 in 2020). Our financial advisor cautions about over-saving for college since there are penalties if the money isn’t used for education. Please read these FAQs to learn more.

If withdrawals are used for purposes other than higher education, the earnings will be subject to a 10% penalty in addition to federal and, if applicable, state income tax.

The company does not provide matching or funding for the 529 plan. The benefit here is that that you can have money automatically deposited from your paycheck and open an account with as little as $25.

Full-time employees can open a 529 account at anytime.

If you leave thoughtbot, you can take the account with you.