Save for college, save on taxes. This is a major benefit of opening a CollegeInvest 529 Plan.
For Colorado taxpayers, contributions to ANY CollegeInvest savings account are eligible for a deduction from your Colorado state income tax return1.
Earnings grow tax-free for both federal and state as long as your savings are used for eligible expenses2. Qualified expenses include tuition and required fees, room and board or certain off-campus rentals, books and supplies, computers and printers, internet access, and more (see FAQs).
Other savings vehicles, such as mutual funds, are generally subject to annual income taxes and/or the capital gains tax at withdrawal.
1 Deductions are subject to recapture in subsequent years in which nonqualified withdrawals are made.
2 The earnings portion grows tax-free while in the account and subsequently used for qualified expenses. The earnings portion of nonqualified expenses are subject to state and federal income taxes, as well as a 10% federal penalty.
What are the qualified expenses for 529 savings plans?
What if I can’t use the funds?
Nonqualified withdrawals are subject to federal and state income tax on the earnings portion and a 10% penalty on the earnings portion. State tax deductions may also be subject to recapture in subsequent years.
There are two options to avoid penalties:
What if my student gets a scholarship?
You can use your funds to cover other eligible expenses like room and board, books, supplies, computer/computer equipment, software, or internet access that some scholarships don’t cover.
You can change the Beneficiary to another family member, or even yourself.
Simply leave the funds in the account for use for other eligible higher education expenses at a later time.
Or, you may withdraw funds from your account equal to the scholarship amount without incurring the 10% federal penalty on the earnings portion. The earnings portion of your withdrawals may still be subject to state and federal income taxes. (You should carefully read the Plan’s Plan Disclosure Statement, or consult a tax advisor for your specific situation.)
When we talk with parents and grandparents about saving for college, flexibility is at the top of their concerns. It’s also the most inherent benefit of 529 savings plans.
You as the Account Owner control the number of accounts, the beneficiaries, how much to save, what you pay for and when, and more. With the flexibility to change any of these when YOU want to.