Section 529 Plans for College Funding

Section 529 plans allow you to save tax on the earnings on funds you set aside for education purposes. A specific beneficiary is designated for each 529 account. When funds are withdrawn for that beneficiary, the distributions are not taxed as long as they are used for qualifying education costs such as tuition, books, supplies and equipment, and also room and board. If funds are withdrawn for other purposes, the earnings are taxed and a 10% penalty is imposed, unless the beneficiary had received a scholarship. Contributions to 529 Plans are subject to gift tax filing requirements. You can accelerate 5 years' worth of gifts when giving to a 529 plan. Therefore, each individual (spouse, grandparent, etc.) can give up to 5 times the annual gift tax exclusion to each student/beneficiary without gift tax consequences. The annual gift tax exclusion amount changes annually, so to find this year’s exclusion amount, please see the list provided on our website under Resources titled “Annual Updated Tax Numbers” for this and other limits, thresholds, and rates that change annually. Consider contacting your financial advisor for assistance in selecting and investing in a Section 529 plan that is right for you.