Topics include education, estate, insurance, investment, retirement and risk management planning as well as basic tips for budgeting.
Benefits of 529 education savings plans
Many families with children bound for private K-12 education, college or a vocational school are concerned about setting aside enough money for tuition. Investing in 529 education Savings Plans (529 plan) — tax-deferred investment plans operated by various states can help families save for the future costs of education.
- The earnings on your investments grow tax-deferred.
- Withdrawals, or distributions, for qualified educational expenses are free of federal income tax for state-sponsored programs and are tax-free for education savings plans of eligible education institutions.
- Some states allow you to deduct the full or a partial amount of your contribution from your state income taxes if you participate in a plan operated by your home state.
- When your dependent children begin to use their 529 plan for college/vocational school expenses, you may be able to claim either The American Opportunity tax credit or The Lifetime Learning tax credit on your federal tax return. In 2023, you can claim The American Opportunity tax credit for an amount up to $2,500 each year for the first four years of college.1 The Lifetime Learning tax credit may allow you to claim up to $2,000 in later years. Your eligibility for either The American Opportunity or The Lifetime Learning tax credit is based upon modified adjusted gross income.2
- Contributions may be eligible for a gift tax exclusion and excluded from your taxable estate. Individuals may contribute up to a maximum of $80,000 for each beneficiary — or $160,000 from married couples — without incurring federal gift taxes; however, you may not make further gifts to that beneficiary for the next five years.
- Unlike an UGMA account where the beneficiary has access to the funds at age of majority (18 or 21), a 529 plan allows the donor to stay in control of the account. In most cases, the named beneficiary has no rights to the funds.
- 529 plans have maximum contribution limits that vary by state.
- A wide range of family members are eligible beneficiaries. You may change the beneficiary of the account at any time.
- Direct transfers from one 529 plan to another 529 plan are allowed for the same beneficiary. You may make one rollover per 12-month period or when you change beneficiaries.
- Your withdrawals can be used for qualified expenses at any U.S.-accredited education institution nationwide.
- Most plans offer a variety of investment options, typically stocks, bonds and money market mutual funds.
- Plan assets are professionally managed either by the state treasurer's office or by a third-party investment company hired as the manager.
Participation in a 529 Education Savings Plan (529 Plan) does not guarantee that contributions and investment return on contributions, if any, will be adequate to cover future tuition and other education expenses or that a beneficiary will be admitted to or permitted to continue to attend an educational institution. Contributors to the program assume all investment risk, including potential loss of principal and liability for penalties such as those levied for non-educational withdrawals.
An investor should consider, before investing, whether the investor's or designated beneficiary's home state offers any favorable state tax treatment or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Consult with your financial, tax or other adviser to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. You may also wish to contact your home state or any other 529 education savings plan to learn more about the features, benefits and limitations of that state's 529 education savings plan. Furthermore, the Tax Cuts and Jobs Act that was signed into law on December 22, 2017 allows for up to $10,000 a year per beneficiary in tax free distributions from a 529 Plan if used for tuition incurred for enrollment or attendance at a public, private, or religious elementary or secondary school. Check with your state's guidelines prior to withdrawing the funds. For more complete information, including a description of fees, expenses and risks, see the offering statement or program description.
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