PC-ES 529 College Savings Plans PC1349-Print

EDUCATION PLANNING

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room, board, fees, books, or supplies), contributions grow federal tax-free and will not be taxed when the money is withdrawn.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 $14,000 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 $70,000 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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