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 ?
In the case of a state-sponsored qualified tuition program, a person may make contributions to an account established to fund the qualified higher education expenses of a designated beneficiary.
Qualified tuition programs (QTPs), also known as 529 plans, offer substantial tax benefits.
Before creation of the Educational Savings Account (ESA) and Qualified Tuition Programs (QTP, also referred to as 529 plans), parents who wished to give money or property to their minor children could do so in four basic ways:
If a designated beneficiary receives distributions from both an ESA and a qualified tuition program and the aggregate distributions exceed the "qualified education expenses" of the designated beneficiary, then the expenses must be allocated among such distributions for purposes of determining the amount excludable under each.
If a designated beneficiary receives distributions from both an ESA and a qualified tuition program and the aggregate distributions exceed the qualified education expenses of the designated beneficiary, then the expenses must be allocated among such distributions for purposes of determining the amount excludable under each.
For many of the reasons discussed in this issue of The Business Owner Journal, the Coverdell Education Savings Account ("Coverdell ESA" or "ESA") and the Qualified Tuition Program ("QTP," also referred to as a "529 Plan") are the programs most selected by persons setting aside monies to pay for future higher education expenses.
In the case of an educational IRA or a qualified tuition program, money withdrawn for qualified educational expenses is exempt from federal income tax.
You should also consider, before investing, whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program.
Benefits may be transferred from one beneficiary to another in the same family without incurring tax consequences: Reporting by the state qualified tuition program is now required, to both the IRS and the designated beneficiary, no later than January 31 of each year.
530(d)(2); and amounts distributed from a qualified tuition program and excluded under Sec.
As before, payments or contributions to a qualified tuition program (QTP) are not deductible, but several changes will increase the tax benefits of distributions from QTPs:
EXHIBIT 2 TAX-FAVORED EDUCATION SAVINGS VEHICLES Qualified Tuition Program Applicable IRC section 529 Tax benefit Account investment earnings not taxed Maximum contribution Determined by QTP plan provisions; generally equal to amount necessary to provide for QEEs Maximum annual Amount of QEEs qualifying distribution MAGI phaseout No phaseout Whose expenses?

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