Overview of 529 College Savings Plans
529 Plan benefits include:
- Maintain control of the account as the owner
- Enjoy tax-deferred growth on your contributions
- Make tax-free withdrawals for qualified expenses
- Contribute funds without age or income restrictions
What are the tax advantages when you invest with a 529 plan?
In addition to tax-free growth on contributions, some states offer state income tax benefits if you contribute to a 529 college savings plan. Find out if you're eligible, along with your potential savings.
FAQs:
Q: How can I manage my 529 plan?
A: You can have a Self‑Directed account or you can work directly with an advisor.
Q: Who can open and contribute to a 529 plan?
A: Anyone age 18 or older and residing in the United States can open and contribute to an account.
Q: Who controls the plan's assets?
A: The account owner maintains control of the assets for the life of the account.
Q: What if my beneficiary doesn't go to college?
A: You can leave the assets in the account for future use (there are no age limits on contributions or withdrawals). Switch the beneficiary to another family member or make a non-qualified withdrawal (subject of federal income tax and an additional 10%- federal tax on any earnings withdrawn).
Q: What are the tax advantages of a 529 plan?
A: When you use your 529 for qualified higher education expenses you won't pay federal - or often state - taxes on withdrawals, including any earnings. State tax treatment may vary for distributions to pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school, apprenticeship expenses, and payment of qualified education loans.
Q: How can funds be used?
A: Withdrawals are tax free when used to pay for qualified education expenses of the designated beneficiary. These include
- Tuition and fees,
- Certain room and board expenses,
- Books, supplies and equipment required for the enrollment or attendance of the beneficiary at an eligible educational institution,
- Certain expenses for special needs beneficiaries at any accredited school, including public or private universities, graduate schools, community colleges and accredited vocational and technical schools, computer or peripheral equipment,
- Computer software or internet access and related services if used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution,
- Up to $10,000 per year per beneficiary to help pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school,
- Expenses required for the participation of a designated beneficiary in a registered and certified apprenticeship program,
- Payment of student loans up to up to a lifetime maximum of $10,000 for a designated beneficiary (the lifetime maximum is applied separately for the sibling's loans versus the designated beneficiary's loans). State tax treatment may vary.
Q: How does investing in a 529 plan impact financial aid?
A: Assets in a 529 account are generally treated as an asset of the parent, which is weighted at 5.6% towards the Expected Family Contribution (EFC) formula. Qualified withdrawals are not considered to be income to the parents or student in the EFC formula. This is based on current interpretation of current federal financial aid rules. Financial aid rules may change, and the rules in effect at the time the beneficiary applies may be different. For more complete information, please visit the Department of Education's website at www.ed.gov.