College Planning

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A 529 Plan is a tax-advantaged investment account that allows almost any adult – a parent, guardian, grandparent, relative, or even a friend – to help pay education expenses.

Just about anyone can open and contribute to a 529 Plan, but you must meet the following guidelines:

  • You are at least 18 years old
  • You have a social security number or a tax identification number
  • You have a permanent legal US mailing address

The money is owned and controlled by the person who sets up the account, not the beneficiary. You can also change the original beneficiary to a member of your immediate or extended family, including siblings, grandchildren, nephews, nieces, cousins and more.

Unlike many other tax-advantaged accounts, like IRAs and 401(k)s, there are no annual contribution limits on 529 Plans. With most plans, account owners can contribute $300,000 or more per beneficiary over the lifetime of the account.

The overall balance of the account cannot exceed the expected cost of the beneficiary's qualified higher education expenses, which vary by state.

529 Tax Advantages

The money in the account grows federal income tax-deferred, and when you’re ready to use the money, if withdrawn for qualified expenses it is free of federal taxes though state taxes and penalties may apply.

You may also make five years’ worth of gifts (up to $75,000 for an individual or $150,000 for a married couple) to a 529 Plan without owing federal gift tax. However, you cannot make any other gifts to the same beneficiary over the next five years.

Additionally, up to $10,000 may be paid toward principal or interest of a student loan for the beneficiary or sibling.

Versatility

Funds in a 529 Plan can be used to pay for qualified education expenses at most accredited two- and four-year colleges, universities and vocational-technical schools, including many outside the U.S., as well as certified apprenticeships.

Qualified education expenses may include mandatory fees, supplies, books, or other required equipment, and room and board, if enrolled at least half time. Funds can also be used to pay for tuition at eligible public, private and religious K-12 schools, up to $10,000 per year per beneficiary.