529 Plan
What is a 529 College Savings Plan?
529 Plans allow you to put aside funds for future education costs for you, your children, grandchildren, etc. The growth of the investment is tax exempt so long as the funds are used exclusively for qualified college expenses.
What are 'qualified college expenses'?
Qualified education expenses include tuition, fees, books, supplies and equipment needed for enrollment or attendance, and room and board at qualified schools. This includes public, private, and religious schools.
Is there a tax break with a 529 Plan?
The funds contributed to the Plan are after-tax, but the earnings or growth of the investments may be withdrawn tax-exempt.
Principal benefits to a 529 Plan?
- Open to anyone.
- Zero residency restrictions and no cap on income level.
- Low impact on financial aid.
- Savings are treated as a parental asset when aid is determined, which means that (based on current financial aid formulas) only 5.6 percent or less of the account's value is factored into calculating the Expected Family Contribution (EFC) for each academic year.
- Can be used at most schools.
- Funds are good at most accredited public or private colleges or universities, community colleges or graduate schools, in the U.S. Some plans also recognize accredited vocational and international colleges.
- The account holder controls the money.
- The parent or grandparent controls the money for the life of the account, even after the beneficiary turns 18.
- Large contributions are possible.
- Some plans have contribution limits as high as $350,000 per beneficiary.
- Gift tax exemptions.
- You may contribute annually without triggering any gift tax. You also have the option to make a lump sum contribution which is treated as if it was made over a five-year period. (See Gift Tax Exemptions table at left for annual rates.)
For more information about College savings plans, contact us.
