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 ?
Pittsford, NY, September 20, 2013 --(PR.com)-- In recognition of September being designated as “College Savings Month,” Savingforcollege.com is helping to increase 529 plan awareness by compiling details of the various contests, sweepstakes and events held by states and their college-savings plans throughout the month.
Through its Upromise affiliates, the company also manages more than $17 billion in 529 college-savings plans, and is a major, private source of college funding contributions in America with 10 million members and nearly $500 million in member rewards.
The money in the bank can reduce need-based aid, dollar for dollar, especially at two-year institutions, where tuition is relatively low, according to the report, "When Saving Means Losing: Weighing the Benefits of College-savings Plans," released recently by the Lumina Foundation.
In addition, the federal government created the Hope Scholarship and Lifetime Learning tax credit programs, and state governments created prepaid tuition plans and college-savings plans. These state savings plans, called "529 plans," are used by many families to help pay for college.
Strong, based in Wisconsin, and another money manager, MFS Investment Management, oversee most of the $180 million in funds in the state's four college-savings plans, which offer tax advantages that encourage parents to save for their children's education.
Colorado gave current participants the options of switching to other college-savings plans offered by the state without forfeiting tax benefits, staying put, or taking out what they put in and leaving the plan with no penalty.
Beginning in 2001, Colorado residents can deduct all contributions to college-savings plans from state income tax (earnings growth already is exempt).
"Colorado gave investors (in college-savings plans) a couple of big reasons to stay in-state," Hurley said.

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