You’ve heard the phrase, “Not all heroes wear capes.” Well, the NEST 529 College Savings Plan team thinks it’s true, especially when it comes to helping people set their loved ones up for the future while receiving a nice tax deduction.
Contributions made in 2022 by NEST 529 account owners are eligible for a Nebraska state income tax deduction up to $10,000 ($5,000 if married filing separately).1 That means they have more money to celebrate—or save for—their loved one’s future.
Here are three great reasons to remind your clients to contribute to their NEST 529 account before December 31, 2022:
1) Rising Cost of College
The price of higher education looks much different than it did 20 years ago. Tuition and fees, a mere fraction of an individual’s total college bill, continue to increase. Scholarships and grants may help cover items like textbooks, but many do not cover living expenses.
The College Board is a national not-for-profit dedicated to helping future students prepare to attend college. Its annual report, “Trends in Higher Education Series: Trends in College Pricing and Student Aid 20212,” states the average published tuition and fees for full-time undergraduate students were:
- Public two-year college: $3,800
- Public four-year in-state college: $10,740
- Public four-year out-of-state college: $27,560
Combine the sticker price of tuition and fees with room and board, books, supplies, transportation, and other student expenses, and the costs climb further.
- Public two-year college: $18,830
- Public four-year in-state college: $27,330
- Public four-year out-of-state college: $44,150
While postsecondary school is expensive, studies show the more education an individual receives, the more opportunities and earning potential they will have down the road. That’s why investing in a 529 account now can pay big dividends later.
2) Triple Tax Benefits
There are ways to increase the tax benefits during tax season. We are referring to the three big T’s: tax deduction, tax-deferred growth, and tax-free withdrawals. It’s important to remind your clients of the following tax benefits they receive from their NEST 529 account.
Account owners are eligible to receive a Nebraska state income tax deduction of up to $10,000 ($5,000 if married, filing separately) for contributions made to their own NEST 529 accounts.1 Contributions made beyond the $10,000 mark cannot be carried over to a future year.
The current bear market may make clients hesitant to increase their contributions, but explaining the benefits of tax-deferred growth may convince them to do so. NEST 529 contributions are made with after-tax dollars and any earnings grow federally tax deferred. This means clients can use any investment growth for college expenses, and they don’t have to pay federal or state income taxes on any gains/earnings while in the account.
When the time comes to use the funds for school, clients can access those carefully saved dollars tax-free for qualified college expenses.3 Funds cover a wide range of college expenses including tuition, fees, room and board (if enrolled at least half-time), books, supplies, equipment, a computer or printer, computer software or internet access, any special-needs services for special-needs students, apprenticeship program expenses, and qualified education loan payments.
3) Holiday Gifting
When discussing the upcoming tax season with clients, encourage them to talk with family and friends about contributing to a loved one’s NEST 529 account. The NEST GiftED process takes the guesswork out of the process, and they will put their loved one on track for success. That’s far more meaningful than yet another toy or set of holiday pajamas. Keep in mind, account owners qualify for the tax deduction. For a third party to qualify for the tax deduction, they would need to be an account owner.
As we quickly approach year-end 2022, take time to strengthen your client relationships. It doesn’t take much effort to reassure them about the many benefits of investing in a NEST 529 account—and it could provide up to $10,000 in tax deductions. By helping them become heroes to their friends and family, you can achieve superhero status yourself.
Want to learn more? Contact the NEST Direct Plan at (888) 993-3746 to set up a presentation for your office and find more details at NEST529.com.
An investor should consider the investment objectives, risks, and charges and expenses associated with municipal fund securities before investing. This and other important information are contained in the fund prospectuses and the NEST Direct College Savings Plan Program Disclosure Statement (issuer’s official statement), which can be obtained at NEST529.com and should be read carefully before investing. You can lose money by investing in an Investment Option. Each of the Investment Options involves investment risks, which are described in the Program Disclosure Statement.
An investor should consider, before investing, whether the investor’s or beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s 529 plan. Investors should consult their tax advisor, attorney, and/or other advisor regarding their specific legal, investment, or tax situation.
NOT FDIC INSURED* | NO BANK GUARANTEE |
MAY LOSE VALUE
(*Except the Bank Savings Static Investment Option Underlying Investment)
1 Account owners may deduct for Nebraska income tax purposes contributions they make to their own account (and any other accounts they own in the Nebraska Educational Savings Plan Trust) up to an overall maximum of $10,000 ($5,000 if married, filing separately). Contributions in excess of $10,000 cannot be carried over to a future year. For a minor-owned or UGMA/UTMA 529 account, the minor is considered the account owner for Nebraska state income tax deduction purposes. The minor must file a Nebraska tax return for the year their contributions are made to be eligible for a tax deduction for their own contributions. In the case of a UGMA/UTMA 529 account, contributions by the parent/guardian listed as the Custodian on the UGMA/UTMA Plan account are also eligible for a Nebraska state tax deduction.
2 Trends in College Pricing. https://research.collegeboard.org/media/pdf/trends-college-pricing-student-aid-2021.pdf
3 Withdrawals used to pay for qualified higher education expenses are free from federal and Nebraska state income tax. Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance; certain room and board expenses incurred by students who are enrolled at least half-time; the purchase of computer or peripheral equipment, computer software, or Internet access and related services, if used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution; certain expenses for special needs services needed by a special needs beneficiary; apprenticeship program expenses; and payment of principal or interest on any qualified education loan of the Beneficiary or a sibling of the Beneficiary (up to an aggregate lifetime limit of $10,000 per individual). However, earnings on all other types of withdrawals are generally subject to federal and Nebraska state income taxes, and an additional 10% federal tax.
Nebraska law does not treat the following Federal Qualified Higher Education Expenses as Nebraska Qualified Expenses: K–12 Tuition Expenses. If a withdrawal is made for such purposes, although it is a Federal Qualified Withdrawal, it will be treated as a Nebraska Non-Qualified Withdrawal and may result in the recapture of a previously claimed Nebraska state income tax deduction, and the earnings portion will be subject to Nebraska state income tax. Please consult your tax professional about your particular situation.
