#COLLEGE SAVINGS PLANNER SERIES#
They may be purchased with a single lump sum or a series of payments. Pre-paid tuition plans allow participants to buy tomorrow's education at today's prices. State tuition plans fall into two categories: pre-paid tuition plans and accumulation plans. States offering such plans may also give favorable tax treatment for contributions, interest, dividends, and distributions from these plans.
#COLLEGE SAVINGS PLANNER CODE#
These plans are generally referred to as 529 plans for the tax code section that describes how they are treated for tax purposes. These plans qualify for special tax treatment if the funds are used for qualified expenses at a post-secondary school that meets US Department of Education standards for student aid eligibility. Many states have pre-paid tuition programs allowing families to save for a student's higher education. Qualified State Tuition Plans (529 Plans) If the contributor dies within the five-year period, a prorated portion of the contribution may be included in his or her taxable estate for federal estate tax purposes.
Any other gifts to the same beneficiary by the contributor within five years may result in a federal gift-tax liability. * A $75,000 gift is viewed as an accelerated gift over five years. Control of the account remains with the contributor regardless of the age of the beneficiary. Participants can choose from two to almost 30 mutual fund-type investments. Married couples may contribute $150,000 per beneficiary in a single year.*Īssets are professionally managed by fund managers selected by the state. Under a special election, you may make contributions of up to $75,000 per beneficiary in a single year without triggering a federal gift tax by accelerating five years' worth of contributions (gifts) as of 2021. There is no limit on contributions but some states tend to limit contributions once the plan assets have reached a defined maximum (typically $230,000 - $500,000). With a state-sponsored 529 College Savings Plan your contributions can grow tax-deferred (some states allow contributions to be partially or completely deductible) and distributed income tax-free as long as distributions are used for qualified education expenses such as tuition, fees, room and board at higher education institutions. Tax-deferral can have a dramatic affect on the growth of an investment. Accumulate More In A 529 Plan Vs A Taxable Account What are the advantages of a 529 college savings plan?
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