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 Act, modeled after Internal Revenue Code Section 529 Plans, provides a mechanism to fund an account in the name of an individual, and allow the funds in that account to accumulate income tax-free.
College Savings Plans Network 529 Report: A Comprehensive Look at Section 529 Plans.
A directory of financial aid programs by state, a list of selected scholarship programs, and a list of Section 529 plans by state are included.
If you have children or grandchildren, you may want to establish Section 529 plans to help them pay for college.
It also deals with the income tax consequences that result on the death of the owner of a pass-through entity and shows how to develop Section 529 plans for financing education.
Recent changes in the tax code and in the rules of many states' Section 529 plans alter these conclusions in important ways.
Contributions to section 529 plans (and section 530 accounts as well) can only be made in cash.
Offsetting this is the fact that purchases made outside of Coverdell or Section 529 plans are limited only by the annual gifting exclusion of $11,000 per person ($22,000 annually for husband and wife).
The amounts that can be contributed to Section 529 Plans are not limited as Education IRAs are.
tax code have brought Section 529 plans to the forefront of investment vehicles for college savings.
This article will focus on Education Savings Accounts and Qualified State Tuition Programs, also known as Section 529 plans.
Even though education IRAs were helped by the new law, Section 529 plans were helped even more," says Darrell Oliver's advisor, Earl Romero, an accountant and financial planner affiliated with H.

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