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529 Savings Plans - Advantages and Comparisons
Congress introduced the Qualified State Tuition Program
to ease the burden of the increasing costs of college education. Also
referred to as a "Section 529 Plan," this college savings program
is offered through most states and provides unsurpassed income tax benefits.
529 Plans are an integral part of estate and financial planning and are
becoming increasingly popular because of their flexibility and advantages.
Advantages of 529 Plans
| Tax-free Growth and Distributions |
Investments in 529 Plans grow tax-free. Distributions
for qualified educational expenses such as tuition, books, fees, or
room and board are also tax-free. |
| Flexibility |
Although most states offer a 529 Plan, you can
invest in any state’s 529 Plan regardless of your residency
or where the beneficiary goes to college.
Should the beneficiary decide not to pursue a
higher education, 529 Plans have flexible rules for transferring
the plan. |
| Donor Control |
As the owner (donor) of the account, you name the
beneficiary, choose the qualified state program and select the type
of investment. You also decide when distributions may be made and
you can decide to revoke the funds at any time (although penalties
may apply). |
| Estate and Gift Tax Advantages |
Contributions are considered gifts for federal gift
and estate tax purposes and qualify for the annual $11,000 gift tax
exclusion. Another unique advantage of 529 Plans is that they allow
an initial contribution of $55,000 per beneficiary or $110,000 for
married couples, to be treated as a tax-free gift made over five years.
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| High Contribution Limits |
Generally, limits are based on projected expenses
needed to fund a higher education. Although each state sets a limit
on contributions, programs range as high as $265,000 per beneficiary.
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Access 529 Plans Summary  for a quick summary of these benefits.
Comparisons to Other Educational Savings Options
In comparison with other college savings such as Education IRAs and
other Accounts for Minors, 529 Plans offer more tax advantages and higher
contribution limits while providing flexibility and control for the donor
(account owner). Learn more about how 529 Plans differ from other college
savings vehicles with the 529 Educational
Option Comparison.
Non-Deposit Investment Products...
ARE NOT FDIC INSURED
ARE NOT BANK GUARANTEED
MAY LOSE VALUE |
This article is for information and education purposes only and does
not constitute a personal recommendation or take into account the particular
investment objectives, financial situations or needs of individual clients.
Clients should evaluate the merits and risks associated with relying on
any information provided.
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