College Funding 529 Plan: Federal law 1 allows various states to establish tax-advantaged 529 savings programs to pay for a student’s qualified higher education expenses. In these programs, cash contributions are made to an account established for a named beneficiary. Contributions are not tax deductible, but any growth in the account is tax-deferred. Distributions from the plan used exclusively for higher education expenses are federally tax exempt, and depending on the state in which you reside, may or may not be tax exempt.
Qualified higher education expenses include tuition, fees, books, supplies and equipment required for attendance. Room and board may also be included as long as the student is enrolled at least half-time. Accredited post-high school educational institutions offering associates, bachelors, graduate level or professional degrees generally qualify as eligible institutions.
For federal gift tax purposes, contributions are considered completed gifts and qualify for the annual gift exclusion, which is currently $12,000 per recipient. A married couple can elect to “split” gifts for a total annual contribution of $24,000 per child. Contributions in excess of the annual exclusion limit of $12,000 can be spread out over a five-year period. Thus it is possible to contribute up to $60,000, or $120,000 if a joint gift is made, per beneficiary in one calendar year. If a donor passes away before the end of five years, a pro-rata portion of the contribution will be included in his or her estate.
While we have provided a brief description of some of the benefits of a 529 College Savings program, whether you are parent, grandparent, aunt, uncle or “just a nice person”, a Lane Bridgers Financial Advisor can assist you in determining if a 529 Plan is applicable for you, and if so, help you to select the right plan for you and your beneficiary.
For more information on 529 Plans, please view the following website: http://www.sec.gov/investor/pubs/intro529.htm
1 529 refers to Section 529 of the Internal Revenue Code, the section of the code which governs these plans.
