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 ?
The federal government created 529s, but the 50 states plus the District of Columbia administer them.
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Also known as qualified tuition plans, 529s are available in every state and the District of Columbia.
And while 529s are by no means the only option for saving for college, they're a far more efficient route than savings and traditional brokerage accounts.
See Rourke O'Brien, 529s and Public Assistance, NEW AM.
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As a result, 529s are helping lessen families' reliance on other funding for higher education.
As pointed out by the Center for Social Development (CSD) (2011) at Washington University, which has been the driving force behind the 529 innovations briefly discussed here, 529s are "plan" structures that provide the institutional supports--automatic enrollment, seed and matching deposits, good investment options, ease of recurring deposits, lower management fees, or the "plumbing"--that make universal participation, even for smaller-dollar accounts, possible.
The 529s help enable families to achieve self-sufficiency.
Most people know they can save for their children's college educations through a 529 plan, but what isn't so widely known is that 529s can be used to pay for adults to go back to school as well.