Section 529 College Savings Plans - Saving for college
With today’s rising costs for college and other education, it is
never too soon to begin planning.
Fidelity Advisor 529 college Planning Information Here
Fidelity Advisor 529 college Planning Application Here
What Are College 529 Plans?
529 college savings plans are one
of the most important financial and tax developments since the creation of the
401k plan. Section 529 college plans are a tax deferred method of making
contributions for college. These plans offer numerous benefits to those who
invest and are not just for parents and grandparents. Every investor should know
the basics about these exciting plans.
College 529 Plan Benefits
There are many benefits to 529 plans:
High contribution limit: You can contribute up to $250,000 (contributions and
earnings) depending on the individual state’s plan.
Contributions eligible for gift tax exclusion: You may accelerate use of
the annual gift tax exclusion and make a single contribution up to
$50,000 ($100,000 for married couples) per beneficiary, per single
year, without federal gift tax consequences.
Contributions excluded from taxable estate: Funds contributed are excluded
from your taxable estate (an accelerated gift exemption may apply)
and you still retain the right to determine how the account is used.
Low minimum investments: Because you can open an account with virtually
any amount, it’s easy to start saving today, and continue saving
with small monthly contributions.
Wide list of eligible family members, including cousins: For the purpose
of tax-free rollovers and changes of designated beneficiaries, “a
member of the family will include first cousins, children,
grandchildren, parents, grandparents, nieces nephews and spouses of
all of the above, of the original beneficiary.
Simplified and flexible rollover between 529 plans: Direct transfers
from one 529 plan to another will be allowed for the same
beneficiary. A limit of one rollover per 12-month period will apply
to new amounts distributed from a 529 plan and later re-contributed
within 60 days.
Expansion of room and board expenses: For students enrolled at least
half time, qualified room and board expenses have increased from
$2,500, for those living off campus, and $1,500, for those living at
home, to the full room and board cost by each institution.
Specifically, tax-free distributions will be full invoiced amount
calculated as part of the “cost of attendance for federal financial
Tax-Deferred earnings and tax-free withdrawal: The earnings on your
investments grow tax-deferred-much like a 401k or Traditional IRA,
but are not taxed upon a qualified withdrawal.
Your assets can be used for college expenses at any accredited institution
of higher learning in the U.S.
No Income Limits: There are no income limits restricting who is eligible
Control and liquidity: You may withdraw funds at any time for
non-higher education expenses or change the beneficiary for the
account. (Federal and State income tax on the earnings and a 10%
penalty will apply.)
Investment choices: You may choose from a variety of investment options
depending on the 529 plan offered by the investment manager of the
Fidelity Investments fidelity advisor ScholarShare application
Fidelity Investments Fidelity Advisor ScholarShare Atlantic Financial 838719.PDF
For more information about 529 plans, a powerful way to save for college
education, please contact Atlantic Financial at (800) 559-2900, or use
this contact form.
Financial Planning with Section 529 Plans
When Congress enacted Section 529 of the Internal Revenue Code, it is a sure
bet it did not foresee the creative ways education savings plans could be put to
use. Advisors with one eye on the code and another on the future are finding a
wide variety of estate and retirement planning applications in this code
Section 529 plans allow owners to accumulate a large amount of wealth in
savings plans sponsored by individual states.
The states set the rules,
along certain federal guidelines, as to how the savings may be invested, how
long the plan can stay in existence and for whom the money may be spent.
The account is owned by an adult, for the benefit of a named beneficiary.
Once the money goes into the account, it is removed from the estate of the owner
and considered a completed gift, without the requirement to file a gift tax
return providing the beneficiary is not more than one generation removed from
the owner. However the donor/owner of the account maintains total control over
the account, determining when, how much and to whom the distributions will be
If the money is used for the beneficiary’s higher education needs (including
tuition, books, room and board) the earnings from the investment can be
distributed tax-free. Some states even allow a deduction against state income
taxes for the contributions…California is not in that group.
If the money is paid out to the beneficiary for any other reason, the
earnings are taxable to the beneficiary and subject to an additional 10% excise
tax. Here is a key point: the owner may change the beneficiary on the account
not more often than once a year, and now many states allow the account owner to
be the beneficiary.
Multiple accounts may be established for multiple beneficiaries, subject to
the per-beneficiary account limits set by the state sponsors generally ranging
from $100,000 up to $250,000. Owners may open accounts in multiple states.
Each state dictates the range and style of investment alternatives. Generally
the investments go into bundled variable or mutual fund products selected by the
state. However, a number of states offer the more conservative prepaid tuition
plan option. The latter are indexed to the rising cost of education determined
by that state…and according to the College Board, have averaged a compounded
return of 6.3% since 1991-92.
Since a large amount of wealth can be accumulated outside of the estate of
the donor/owner, the planning opportunities are intriguing. For example, to date
11 states consider the assets beyond the reach of creditors. Potentially a
donor/owner could create multiple plans in multiple states, shielding a large
amount of wealth from creditors…while still maintaining all control of that
These plans, acting as a storehouse of wealth, can be stretched out to
benefit multiple generations or even to provide retirement income for the owner.
Assume that Joan established a plan naming Beth as the beneficiary. Beth gets a
scholarship and doesn’t use the money in the account. Joan could delay
distributions. (States have different rules…some require distributions must be
made within 10 years after projected college enrollment while others allow an
Joan could name Beth’s future children as beneficiary(s). Since this is a
generation skip, it requires the filing of a gift tax return. Or, Joan could
keep the account intact, taking advantage of the continuing tax deferral, and
name herself as the beneficiary. She could use the money to pay for that
graduate degree she always wanted or she could elect to withdraw the money for
her own retirement, paying income and excise taxes on the earnings.
In addition to saving for college did you know that
Creative IRA Roth planning can leave a significant tax free legacy
for a young child?