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529 College Savings Plans 407344

529 College Savings Plans 407344

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Published by Brian Johnson

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Published by: Brian Johnson on Nov 07, 2011
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Emerald Spectrum Advisory
Malissia Johnson, CFP®, AAMS, CMFC205 Powell PlaceBrentwood, TN 37027615-369-0690malissia.johnson@lpl.comwww.emeraldspectrum.com
529 College Savings Plans
October 06, 2011
Page 1 of 2, see disclaimer on final page
529 college savings plans are tax-advantaged collegesavings vehicles and one of the most popular ways tosave for college today. Much like the way 401(k)plans revolutionized the world of retirement savings afew decades ago, 529 college savings plans haverevolutionized the world of college savings. As ofJune 2010, total assets in college savings plansreached an all-time high of $135.2 billion. (Source:College Board's Trends in Student Aid 2010)
Tax advantages and more
529 college savings plans offer a unique combinationof features that no other college savings vehicle canmatch:Federal tax advantages: Contributions to youraccount grow tax deferred and earnings are taxfree if the money is used to pay the beneficiary'squalified education expenses. (The earningsportion of any withdrawal not used for collegeexpenses is taxed at the recipient's rate andsubject to a 10% penalty.)State tax advantages: Many states offer incometax incentives for state residents, such as a taxdeduction for contributions or a tax exemption forqualified withdrawals.High contribution limits: Most plans let youcontribute over $300,000 over the life of the plan.Unlimited participation: Anyone can open a 529college savings plan account, regardless ofincome level.Professional money management: College savingsplans are offered by states, but they are managedby designated financial companies who areresponsible for managing the plan's underlyinginvestment portfolios.Flexibility: Under federal rules, you are entitled tochange the beneficiary of your account to aqualified family member at any time as well asrollover the money in your 529 plan account to adifferent 529 plan once per year without incometax or penalty implications.Wide use of funds: Money in a 529 college savingsplan can be used at any college in the UnitedStates or abroad that's accredited by theDepartment of Education and, depending on theindividual plan, for graduate school.Accelerated gifting: 529 plans offer an excellentestate planning advantage in the form ofaccelerated gifting. This can be a favorable way forgrandparents to contribute to their grandchildren'seducation. Specifically, individuals can make alump-sum gift to a 529 plan of up to $65,000($130,000 for married couples) and avoid gift tax,provided the gift is treated as having been made inequal installments over a five-year period and noother gifts are made to that beneficiary during thefive years.
Choosing a college savings plan
Although 529 college savings plans are a creature offederal law, their implementation is left to the states.Currently, there are over 50 different college savingsplans available because many states offer more thanone plan.You can join any state's 529 college savings plan, butthis variety may create confusion when it comes timeto select a plan. To make the process easier, it helpsto consider a few key features:Your state's tax benefits: A majority of states offersome type of income tax break for 529 collegesavings plan participants, such as a deduction forcontributions or tax-free earnings on qualifiedwithdrawals. However, some states limit their taxdeduction to contributions made to the in-state 529plan only. So make sure to find out the exactscope of the tax breaks, if any, your state offers.Investment options: 529 plans vary in theinvestment options they offer. Ideally, you'll want tofind a plan with a wide variety of investmentoptions that range from conservative to moregrowth-oriented to match your risk tolerance. Totake the guesswork out of picking investmentsappropriate for your child's age, most plans offer
A brief history 
529 plans were first authorized by Congress in 1996. Known officially as "qualified tuition programs," 529 plans are so named because they are governed by section 529 of the Internal Revenue Code.

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