Selecting a 529 Plan – Anyone who wants to set aside funds for higher education expenses should consider a 529 plan. In choosing among 529 plans, one should consider that certain states offer tax incentives to in-state residents who invest in their home state’s 529 plan. Whether a state tax incentive is available depends on your state of residence. Money invested in a 529 college savings plan grows federal income tax free when withdrawn for qualified higher education expense and earnings are free from federal income tax. For tax advice, consult with your tax professional. Our advisors can provide you with information concerning 529 plans, including comparisons of the performance of different state 529 plans.
Objective – To provide an account that individuals can use to save for qualified higher education expenses.
Contribution – A 529 plan may allow for contributions over $300,000, depending on the plan. However, contributions are gifts; therefore, the $13,000 annual gift limit should be considered. In addition, a special gifting provision applies to 529 plans; $65,000* can be contributed in one year to be prorated over five years, until the maximum contribution limit of the plan is reached. Tax forms are required for accelerated gifting, please contact your tax professional.
Eligibility – Anyone who plans to attend an eligible postsecondary educational institution can be the beneficiary of a 529 plan. The account holder will maintain control of the account. If the beneficiary decides not to attend a postsecondary school, the account owner may change beneficiaries to another member of the family (first cousins included; if the new beneficiary is not related to the previous beneficiary, taxes may apply) of the original beneficiary.
Distributions – Qualified distributions can be taken without federal income tax or penalty for any of the following: tuition, fees, books, supplies, room and board, plus for 2009 and 2010, computers and equipment, technology and internet access. Withdrawals used for expenses other than qualified education expenditures may be subject to federal and state taxes plus a 10 percent penalty.