Insurance, Annuities, and Investments
Section 529 Plans
529 plans are state-sponsored investment programs that are designed to help you meet your higher education goals. So if you want to help pay for your child’s college tuition or even the tuition of another family member, 529 plans can help. By offering a range of benefits including attractive tax advantages and flexible investment options, 529 plans can help you save for tuition and even room and board.
529 Tax Advantages
Your 529 plan savings are tax-deferred, which means your savings might grow faster than comparable taxable accounts. And when you take money out from your 529 plan to pay qualified education expenses, those withdrawals are federal income tax-free. This includes payments for tuition, room, and board. Some states also offer additional tax breaks, but it is important to check your state’s plans and rules because they may vary.
529 Contribution LimitsWhile the IRS sets no specific 529 plan annual contribution limits, states generally limit the total balance within an account to the estimated cost of the beneficiary’s qualified educational expenses. Gift tax limits should be considered, as well. The current annual gifting limit is $15,000 per individual, which means a couple could gift up to $30,000 per recipient in 2019 without using any of their lifetime gifting exception. Each state also limits the amount of annual contributions that qualify for tax breaks.1
Types of 529 PlansGenerally, 529 plans come in two forms. The first type is a college savings plan, which allows you to vary your contributions. You can use these plans to pay for qualified schools, including colleges, trade schools, and graduate schools.2 The second type is a prepaid plan, which allows you to “lock in” tuition rates at a specific school through lump-sum or monthly payments. Under either plan, if the child you originally started the plan for doesn’t go to college, you can use the plan for another child or even to further your own education.
529 Investment OptionsWith 529 plans, you have a variety of investment choices that allow you to select a strategy based on your needs and preferences, and the beneficiary’s age. Your investment options will vary based on the specific plan you choose.
1Check with your tax advisor for help with your specific circumstances.
2Generally, you can also use your state’s college savings plan to pay for tuition in any other state.