Saving for Your Kid's College with a Minnesota 529 Plan

The thought of saving up for college can feel overwhelming. Trust me, as a mother of three, I completely understand the feeling. With the rising costs of tuition, year after year, how can any parent hope to foot the bill when it comes to quality education?

Thankfully, the state of Minnesota participates in what is called a 529 Plan, which allows those enrolled to save funds for the future and get some tax breaks in the process. 

Still, many have questions about the plan, how it works, and how to get things started. Let’s break down some answers!

What Is a Minnesota 529 Plan?

The Minnesota 529 Plan is like a savings account. You can manage it by mail or online. It allows you to deduct scheduled amounts from your bank or deductions directly from your paycheck. Recurring payments are not the only option, however. Money can be placed in the account at any time.

The major difference between a 529 Plan and your basic savings account is that your earnings, if any, that you incur over time will be free from taxation. In other words, you can earn more (and keep more of what you earn) with this type of savings plan. The money put into the 529 Plan is completely free from federal taxes. Your state taxes will also offer savings, which vary depending on the tax credits you claim.

How Can Minnesota 529 Plan Funds Be Used?

It is hard to say where your child is headed in the future. Will they be off to college? Will they opt for trade school? Will they focus on employment immediately after high school? While no one can predict the future, the 529 Plan does make using its funds flexible.

What the Plan calls “Qualified Education Expenses” vary greatly, meaning the way you use the funds can vary, too. Fund use may include “tuition, certain room and board expenses in addition to any fees, books, supplies and equipment required for enrollment and attendance at an eligible educational institution, which includes most post-secondary institutions,” explains the state’s website. “Computers and related technology such as internet access fees, software or printers used primarily by the designated beneficiary when enrolled at an eligible educational institution are also qualified education expenses.”

In addition, if you opt for private education in K-12, you may access up to $10,000 per year per beneficiary for qualifying tuition, materials, and equipment. 

The Minnesota 529 Plan also allows for use in “an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act,” meaning trades programs can also access these funds. Young adults can also opt to repay student loans (up to $10,000) for educational uses, with the money in the 529 Plan.

It is important to note, however, that the more nontraditional uses of the Plan - including K-12 educational tuition, apprenticeships, loan repayment, and equipment - can cause changes in your state tax status. While these uses can be withdrawn free from federal taxes, some may “include recapture of tax deduction/credit, state income tax as well as penalties,” according to the program’s website. 

It’s because of these confusing caveats that it is always best to work with a financial advisor to understand the ins and outs of how to use funds from a Minnesota 529 Plan.

How Do I Enroll in a Minnesota 529 Plan?

The easiest way to set up the Minnesota 529 Plan is with the help of a financial professional. Instead of trying to understand the confusing application process, or doing it alone with those forms, allow me to guide you through the process, handling the “heavy lifting” for you. 

You have enough on your plate as a parent. I am happy to help you and your family with a savings plan that can make all the difference in the years to come. A college education isn’t cheap, but taking steps today to begin that savings process can go a long way to lessen the burden (and debt) down the road.

Call (507) 304-7017 or click here to set up an appointment online. I look forward to helping you with your financial future!

Participation in a 529 Education Savings Plan (529 Plan) does not guarantee that contributions and investment return on contributions, if any, will be adequate to cover future tuition and other education expenses or that a beneficiary will be admitted to or permitted to continue to attend an educational institution.  Contributors to the program assume all investment risk, including potential loss of principal and liability for penalties such as those levied for non-educational withdrawals.  Check with your state’s guidelines prior to withdrawing the funds. An investor should consider, before investing, whether the investor's or designated beneficiary’s home state offers any favorable state tax treatment or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program.   Consult with your financial, tax or other adviser to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. For more complete information, including a description of fees, expenses and risks, see the offering statement or program description.