529 COLLEGE SAVINGS PLANS
What You Need to Know About 529 Plans
A 529 Plan is an education savings plan operated by a state that allows you to create an investment account that is earmarked for post-secondary education expenses for the person for whom the account is established. FIVE KEY BENEFITS OF 529 PLAN 1. TAX BENEFITS If the proceeds are used solely for qualified educational expenses (e.g., tuition, room, board, fees, books, or supplies), contributions grow federal tax-free and will not be taxed when the money is withdrawn. Many states also offer tax breaks for 529 plan contributions in the form of income tax deductions to residents. Contributions to the plan do not have to be reported on federal tax returns, simplifying your tax reporting, and deposits up to $15,000 per beneficiary per year will qualify for the annual gift tax exclusion. Account owners can even combine five years worth of annual gift tax exclusions and could thus contribute $75,000 per donor for any beneficiary in year one. * This allows the donor to remove more assets, and therefore growth, out of their estate, and begin growing them tax-deferred or tax-free sooner for the beneficiary. 2. CONTROL The named beneficiary has no legal rights on the funds, so you can ensure the money will be used for education. The account owner can withdraw funds at any time for any reason (though the earnings portion of the nonqualified withdrawals will incur income tax and a 10% penalty tax), even choosing to take back the account for whatever reason. The account owner can change the beneficiary to a member of the original beneficiary’s family, should the original beneficiary decide not to attend school or have excess funds in their account. ** ALTHOUGH EACH STATE MAY HAVE THEIR OWN VARIATION OF THE SAME PLAN, ALL 529 PLANS SHARE BASIC GUIDELINES.
* A gift tax return may be required. Consult your tax advisor. ** Gifting rules may apply if the new beneficiary is in a younger generation. Consult your tax advisor.
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