Arizona Expands Education Savings Accounts to Over 47,000 Families

By Staff Reporter |

Arizona has seen significant growth in its Education Savings Plan (known as “AZ529”), with nearly 47,600 new accounts established over the past four years.

According to Arizona Treasurer Kimberly Yee, the assets in these accounts have surged by almost 50 percent, reaching $2.4 billion during the same period.

AZ529 accounts enable parents, grandparents, and even non-relatives to save for educational expenses in a tax-advantaged manner. Contributions can also come from a variety of sources, enhancing flexibility for account holders.

Starting an AZ529 account requires a minimum monthly investment of just $15, alongside no application fees. Various plans from providers offer options that may range from $25 to $150.

Funds from AZ529 accounts can be utilized at a wide array of accredited institutions, including public and private universities, community colleges, and vocational schools across the nation, as well as some foreign institutions.

Qualified expenses encompass tuition, fees, books, and supplies. Notably, up to $10,000 annually can be designated for K-12 school tuition and for student loan repayments.

Distributions from AZ529 accounts are exempt from both Arizona state income tax and federal income tax, earning the program a Silver Rating from Morningstar in 2023.

Moreover, contributions are also tax-deductible, allowing Arizona filers to claim deductions of up to $4,000 per beneficiary for joint returns and $2,000 for individual filers.

For those aiming for tax deductions on 2024 returns, funding for AZ529 plans must be completed by December 31 of this year.

Arizona offers two options for financial institutions managing AZ529 plans: Fidelity Investments and Goldman Sachs 529 Plan. Fidelity enables personal account openings, while Goldman Sachs allows accounts to be set up by individuals or financial advisors, both capped at a contribution limit of $590,000.

Additionally, AZ529 hosts an annual essay competition that rewards students with scholarship funds. This year, 20 students were awarded over $500 each from a pool of more than 600 participants.

A new development allows for certain leftover AZ529 funds to be transferred to a Roth IRA without tax implications, provided the account has been maintained for at least 15 years under the same owner and beneficiary, with specific conditions on contributions and limits.

Beneficiaries can also be changed by account owners, offering additional flexibility in circumstances like scholarships or disabilities, where penalties for non-qualified withdrawals may be waived.

Established in 1996 by Congress, 529 plans are officially recognized as “qualified tuition programs,” with AZ529 serving as Arizona’s distinct version of this initiative.

It’s important to note that federal financial aid assessment may consider up to six percent of the AZ529 account balance as a parental asset in evaluating eligibility for need-based assistance.