Get acquainted with 529 plans
Tax Tip of the Week
June 22, 2015
Get acquainted with 529 plans
Section 529 plans are old enough now to go to college, yet a recent survey by a financial services firm indicates these education savings plans are still not well known. Here's an overview.
- What they are. In tax language, 529 plans are "qualified tuition programs." Practically speaking, they're education savings accounts with tax benefits. They were created in 1996, when Internal Revenue Code section 529 was added to tax law, authorizing two new ways to save for college: prepaid tuition plans and college savings plans. With a 529 prepaid tuition plan, you buy credits at participating colleges, allowing you to lock in tuition prices. With a 529 college savings plan, you establish an account, choose the plan beneficiary and how you want to invest, and begin making contributions.
- How you can benefit. While there's no federal income tax deduction or credit for making 529 plan contributions, your state may offer a tax break. The money you contribute to your account grows tax-deferred — and the earnings are potentially free from federal income tax if you use withdrawals to pay for qualified education expenses. The plans provide estate and gift tax benefits as well. For example, your contributions qualify for the annual federal gift tax exclusion ($14,000 per donee for 2015). You can make a gift-tax-free lump sum deposit of up to $70,000 in 2015.
Please call for more information on 529 plans and other ways you can save for college.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
© MC 2015
June 22, 2015
Get acquainted with 529 plans
Section 529 plans are old enough now to go to college, yet a recent survey by a financial services firm indicates these education savings plans are still not well known. Here's an overview.
- What they are. In tax language, 529 plans are "qualified tuition programs." Practically speaking, they're education savings accounts with tax benefits. They were created in 1996, when Internal Revenue Code section 529 was added to tax law, authorizing two new ways to save for college: prepaid tuition plans and college savings plans. With a 529 prepaid tuition plan, you buy credits at participating colleges, allowing you to lock in tuition prices. With a 529 college savings plan, you establish an account, choose the plan beneficiary and how you want to invest, and begin making contributions.
- How you can benefit. While there's no federal income tax deduction or credit for making 529 plan contributions, your state may offer a tax break. The money you contribute to your account grows tax-deferred — and the earnings are potentially free from federal income tax if you use withdrawals to pay for qualified education expenses. The plans provide estate and gift tax benefits as well. For example, your contributions qualify for the annual federal gift tax exclusion ($14,000 per donee for 2015). You can make a gift-tax-free lump sum deposit of up to $70,000 in 2015.
Please call for more information on 529 plans and other ways you can save for college.
"Tax Tips" are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
