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While You’re Thinking Taxes, Think 529

As the 2013 tax season gets into full swing, it's a good time to study your tax picture. Are you making the most of tax-advantaged plans—such as a 529 college savings plan?

A 529 plan allows you to save for college and reduce taxes along the way. And the plan isn't just for parents of small children. Grandparents, aunts and uncles—anyone, really—can save to make a college education a reality for a loved one.

The benefits are impressive:

  • State Income Tax Savings: Contributions to a 529 plan may reduce your state income tax liability, depending on the state. Visit savingforcollege.com to see how it works in your state.
  • Tax-Deferred Earnings: Earnings on 529 accounts are tax deferred and, if used for qualified higher education expenses—such as tuition, room and board and related expenses—are federal income tax-free.1
  • Favorable Estate Tax Treatment: Because assets held in a 529 plan are generally not subject to federal estate tax, any contributions made to the program aren't included in your estate.
  • Accelerated Gift Tax Treatment: Since 529 plans qualify for a special gift tax exclusion, you can contribute up to $14,000 to each beneficiary's account annually without gift tax consequences.2 Or you can contribute a lump sum of up to $70,000 ($140,000 for married couples) once per five-year period without paying gift tax.3
  • Creditor Protection: In some states, money invested in a 529 plan is protected from creditors in case of bankruptcy or lawsuit settlements.

And if you're getting a tax refund this year, consider putting all or part of it in a 529 plan.

If you don't have a 529 plan yet, use our College Savings Calculator to get a quick assessment and guide a discussion with your financial advisor.

Retirement Planning

Financial planning can be complex. We provide information and strategies to help you navigate the world of investing.

Learn more >


1Non-qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty. Such withdrawals may have state income tax implications.

2Assumes donor makes no other gifts during that period. If the donor elects to treat a gift as being made over five years, and the donor dies prior to the end of the that 5-year period, the portion of the gift allocable to the period after the donor's death will be included in the donor's estate.

3If the donor elects to treat a gift as being made over five years, and the donor dies before the end of the five year period, the portion of the gift allocatable the period after the donor's death will be included in the donor's estate. Estate tax treatment may differ by state. Any additional gifts given to the same designated beneficiary in the five year period will be subject to federal gift tax. Consult with your tax advisor for more information.

 

This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice. 

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