Education Savings Accounts
A 529 plan can be a key component of saving for education-related expenses. The ever-rising price of higher education can be intimidating, but planning ahead with a tax-deferred 529 plan makes saving for college easier. When the time comes, the money you saved can be used for qualified expenses, including tuition, room and board, and books.
Depending on where you live and your specific 529 savings plan, you may be able to pay for qualified education expenses without paying federal or state income taxes.1 If you or your student do use the funds for other purposes, the earnings portion of a withdrawal is subject to ordinary federal income tax, an additional 10% federal tax, and any applicable state income taxes. A 529 plan may also impact your student’s financial aid eligibility.
College Savings Plans
Your student can use the money you invest to pay for qualified education expenses at accredited institutions both in the U.S. and abroad.
Prepaid Tuition Plans
Lock in the rate you pay for tuition (at eligible colleges and universities) with advance payments via a lump sum investment or monthly payments.
Financial Planning with 529 Plans
Under the gift tax exclusion, you can gift up to $15,000 ($30,000 for married couples) annually2 per beneficiary—or up to $75,000 ($150,000 for married couples) over a five-year period—without triggering the gift tax.3 Because gifts are excluded from your estate, investing in a 529 plan may be a smart strategy for reducing your estate tax.
If your student receives a scholarship, funds may be withdrawn from a 529 plan without penalty—up to the scholarship amount. Withdrawals may also be made in the event of the death or disability of the beneficiary. Ordinary federal and state income taxes would be owed on any investment earnings included in gross income.