529 college savings plan

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529 College Savings Plan

An account into which persons deposit funds to save for university-related expenses. The funds in a 529 college savings account are tax-deferred and, if used directly to pay for college, tax exempt at the federal level. They are sometimes exempt at the state level as well. The plan exists in an attempt to make post-secondary education more affordable. See also: IRA, 401(k).

529 college savings plan.

Each 529 college savings plan is sponsored by a particular state or group of states, and while each plan is a little different, they share many basic elements.

When you invest in a 529 savings plan, any earnings in your account accumulate tax free, and you can make federally tax-free withdrawals to pay for qualified educational expenses, such as college tuition, room and board, and books at any accredited college, university, vocational, or technical program in the United States and a number of institutions overseas.

Some states also exempt earnings from state income tax, and may offer additional advantages to state residents, such as tax deductions for contributions.

You must name a beneficiary when you open a 529 savings plan account, but you may change beneficiaries if you wish, as long as the new beneficiary is a member of the same extended family as the original beneficiary.

In most cases, you may choose any state's plan, even if neither you nor your beneficiary live in that state. There are no income limits restricting who can contribute to a plan, and the lifetime contributions are more than $300,000 in some states.

You can make a one-time contribution of $60,000 without incurring potential gift tax, provided you don't make another contribution for five years. Or, you may prefer to add smaller amounts, up to the annual gift exclusion.

References in periodicals archive ?
Private College 529 Plan's most recent surveys of 1,000 parents of 13-17 year olds and 1,000 teens in that same age range found that 92 percent of each group said saving for college is important, yet only about a third are using tax-advantaged 529 plans among the parents saving for college.
Particular emphasis was placed on usage of and beliefs concerning 529 plans.
com, says matching grants, or funds, have been around for about a decade and are usually disbursed by state-sponsored 529 plans.
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However, 529 plans vary, so be sure to check with your tax adviser.
529 Plans allow an individual to prepay or contribute to an account established for a designated beneficiary's post-secondary education expenses at an eligible educational institution.
Coverdell accounts can be used for elementary, secondary or higher education expenses, while 529 plans are limited to higher education expenses.
Finally, the idea of a 529 plan that would be national in scope and dedicated to helping families plan and save for their children's college education at independent institutions struck me, and many of my colleagues, as an excellent complement to the state-sponsored 529 plans oriented toward public schools.
529 plans are only for the costs of higher education.
Recent changes in the tax code and in the rules of many states' Section 529 plans alter these conclusions in important ways.
529 plans, but not those from California's Golden State ScholarShare plan.