a tax-free savings program
Section 529 Plans are one of the most commonly used college education investment vehicles.
An assortment of beneficial tax-saving opportunities may be associated with these plans, such as:
- State tax deduction on contributions
- Lower fund expenses
- Tax-free growth
- Tax-free withdrawals:
Section 529 Plans are state-sponsored plans that allow you to save for education expenses on a tax-free basis. The money can be used at any accredited school – private or public, in-state or out-of-state.
If the beneficiary does not attend college or has money left over, the money can be transferred to a family member (as distant as a first cousin) or taken out of the account. A non-qualified withdrawal is subject to income tax as well as a 10% penalty on earnings.
There are also significant estate planning opportunities with Section 529 Plans. The assets are not considered part of the account owner’s estate, yet the owner retains control of the account. In addition, special provisions allow individuals to gift up to $60,000 (or $120,000 per couple) in one year to a specific person.
There are a few other types of 529 Plans that exist to provide you with alternative saving options:
- Section 529 Prepaid Tuition Program
- State-sponsored program that involves the purchase of tuition credits or certificates that entitle the beneficiary to a waiver or payment of future qualifying college costs
- Purchasing tomorrow’s tuition, at today’s price
- Institutional Sponsored Section 529 Plan
- Tax legislation allows institutions to sponsor their own plans
- Tuition Plan Consortium (TPC) is a not-for-profit national consortium of over 240 independent colleges and universities setting up Section 529 Plans
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