The 529 College Savings Plans

A 529 Plan is an education savings plan designed to help families set aside funds for future college costs. Created in 1996, it is named after Section 529 of the Internal Revenue Code.

529 College Savings Plans offer generous tax advantages and help you save for a beneficiary's future education.

529 savings can be used for tuition, books and other schooling related expenses at most accredited two and four year colleges and universities, vocational-technical schools nationwide and certain eligible foreign institutions.

By investing in a 529 College Savings Plan, you can save for your child's or grandchild's education, and, at the same time, reduce your federal taxable estate.

The Current Advantages Include:

• Federally tax-free earnings on your account and tax free withdrawals of earnings;

• The ability to invest up to $65,000, per contributor, in a single year for EACH beneficiary without triggering a federal gift tax;

• Maintaining complete control of the account, permanently (unlike UGMA accounts);

• The ability to harness professional investment management services at low enrollment minimums (many plans only require you to open an account for a minimum of $500);

• Your choice of schools - providing the institution qualifies (most do).  These include vocational schools, most U.S. universities and professional schools;

• The option of moving the beneficiary designations from one child, grandchild, niece, nephew, etc. to another - without income tax consequences;

• NO requirement to use the assets prior to age 30 (as is the case with the Coverdell Educational IRA's); and

• Should you, as the 'donor(s)', elect at some point to go 'back to school' - regardless of age - you could use the benefits for yourself or spouse.

Contribution Limits

Contribution minimums are as low as $50.00 per month in most plans, so getting started is easy.

Contribution maximums are up to $65,000 one time, per beneficiary, or $13,000 over 5 years, per beneficiary.

Example: Let's say we have one beneficiary, grandchild Tommy.  Tommy has two (2) sets of grandparents. Hence, the maximum that all four (4) grandparents could contribute would be $65,00 each or a total of $260,000 for a given five (5) year period.   After five (5) years, they could place another $65,000 each for the benefit of Tommy.

Portability Explanation

As your read above, you have the option of moving the beneficiary designation from one person to another, as long as they are consider 'extended family'. 

EX. Let's say, you made $65,000 deposits for both grandson and granddaughter - the years pass and you realize the grandson has no need for his 529 Plan monies- you could then change the beneficiary desigination to grandaughter.

This would constitute a gift under estate tax rules.  However, there may or may not be gift tax consequences because it depends on the year you actually changed the beneficiary designation.

If, for example, you changed the beneficiary designation within the first 5 years, there could be gift tax consequences.  If you did so after the 5th year, there would be none.

However, should this situation arise (less than or greater than 5 years), you could slide partial amounts, as well.  Since estate and gift tax rules seem to be changed every 2-3 years, who knows what the estate tax gift rules will be when it comes under consideration for you.  THEREFORE, you and your advisor would simply need to deal with the options available at that time.

Please keep in mind that 529 'gifts' are not in addition to regular money gifts that you can claim as part of your $13,000 annual exclusion per beneficiary.

Action To Take

Click HERE to obtain 529 College Funding information

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