|
|
| About 529 Plans |
 |
A Section 529 plan is a savings program designed to help families meet higher education expenses. 529 plans offer these unique features and benefits:
Significant Tax Advantages
All withdrawals from 529 college savings plans are federally tax free1 when used for qualified educational costs.2 Investments into a 529 plan enjoy the benefits of tax-deferred compounding. Some states offer residents favorable tax benefits for investing in the state plan. Consult your tax advisor about your particular situation.
Control Over Assets
With a 529 plan, the account owner retains control over the assets for the life of the account and can ensure that assets will be used to pay for college. This is in contrast to accounts established under a state's Uniform Gifts to Minors Act or Uniform Transfers to Minors Act (UGMA/UTMA), where the control over the money shifts to the child at the age of majority (typically age 18 in most states, 21 in others).
Broad Availability
529 plans are available to any U.S. resident, including parents, grandparents, other relatives, or non-relatives. Even trusts, corporations, and other entities can establish a 529 plan.
No Age or Income Limits
With a 529 plan, there are no limitations on the age or income of the account owner or beneficiary, unlike other college-savings instruments, such as a Coverdell Education Savings Account.
Favorable Gift and Estate Tax Treatment
Contributions of up to $12,000 annually per beneficiary ($24,000 for joint filers) are generally considered completed gifts and are excluded from the account owner's estate.3,4
Accelerated Gift Tax Treatment
A special five-year gift election, unique to 529 plans, lets you give a large gift of up to five times the annual gift tax exclusion at once. Currently, up to $55,000 per individual ($110,000 for joint filers) can be contributed in one lump sum free of gift tax. If the account owner makes the special five-year gift election and dies within five years of making the contribution, only a pro-rata portion is excluded from their estate.5
Flexible Beneficiary Designation
There is no personal relationship requirement for the account owner and beneficiary. 529 plan account assets can be transferred without penalty to a new beneficiary as long as they are a "family member" of the original beneficiary—which is broadly defined to include a sibling, first cousin, niece, or nephew, whether a child or adult. You can even set up your account now and transfer the assets to your child later.6
Broad Use of 529 Plan Assets
Account assets can be used to pay qualified higher education expenses including tuition, fees, room and board, books and supplies, and other expenses. Funds can be used at any accredited post-secondary public or private school in the U.S. This includes accredited two- and four-year undergraduate programs, technical schools, graduate, and professional schools.
Penalty-Free Withdrawals
Funds can be withdrawn without penalty if the beneficiary receives a scholarship (withdrawals can be made up to the scholarship amount), or in the event of the death or disability of the beneficiary. Ordinary income tax on earnings would apply.
Non-Qualified Withdrawals
Money can be withdrawn from a 529 plan account at any time, however, if it is not used for qualified education expenses, investment earnings are subject to income taxes plus a 10% federal tax penalty. State income tax treatment on non-qualified withdrawals varies.
Before You Invest
Keep in mind that there are fees and expenses associated with investing in a 529 plan, and the underlying investment options are subject to market risk and may fluctuate in value. Investment objectives may not be met. Potential investors may receive more favorable tax benefits from plans sponsored by their own state. Please consult your tax advisor.
|
|
|
|
|
