529 college savings plan

(redirected from 529 Prepaid Tuition Plans)

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).
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
The 529 college savings plans are distinctly different from 529 prepaid tuition plans. The 529 prepaid tuition plans allow for prepurchase of tuition based upon present day prices and then tuition is paid when the beneficiary is in college.
1.781,612 were for 529 prepaid tuition plans. Of the remaining 1;993.044 contracts.
While the state-sponsored 529 prepaid tuition plans are aimed at public universities, Independent 529 Plan (www.independent529plan.org), extends the benefits of prepaid tuition savings to over 260 private colleges and universities around the nation.
IRC section 529 prepaid tuition plans. Despite the apparent attractiveness of these state-sponsored plans to a low-income financial aid qualifier--the tax-free plan locks in today's tuition rate for future college education, eliminating the risk associated with other savings options--they are the least appealing Tier 3 asset, because distributions are counted as resources.
* Section 529 prepaid tuition plans will no longer be treated as a dollar-for-dollar offset to the cost of attendance or financial aid.
The current FAFSA does not instruct students to include a 529 prepaid tuition plan as part of their parent's net worth, so financial aid administrators will have to ensure that 529 prepaid tuition plans no longer directly reduce need-based aid.