Five facts about 529 College Savings Plans that should pique your interest [Column] – timesherald

Financing university expenses for children remains one of the most important savings goals for many adults. The 529s are one of the most effective education savings plans because of the flexibility and significant tax benefits they offer. But like any investment vehicle, there are some important considerations you need to keep in mind. Here are five facts about 529 plans you should know when considering your options.

Fact n ° 1 – The tax advantages are important. 529 plans have a structure similar to that of the Roth IRAs. You make contributions in after-tax dollars. In more than half of the states, income tax deductions or credits are available to contributors. Income generated under the 529 Plan increases on a tax-deferred basis. Then, when the money is needed for qualifying education expenses (see below), you can withdraw funds tax-free.

Fact No. 2 – Contribution limits are high Although often compared to IRAs, 529 plans have the advantage of being able to set aside much larger sums. There are no annual contribution limits, but your state will limit aggregate funds in 529 plans, ranging from $ 235,000 to $ 542,000 (maximum contributions, SavingForCollege.com). You can invest large lump sums or make regular monthly contributions to a plan. The only limitation to keep in mind is the annual exclusion from the donation tax of $ 15,000 (in 2021). Any amount invested in a 529 plan beyond that in a given year is applied to your Lifetime Gift Tax Exclusion, which now totals $ 11.7 million (in 2021). However, you are allowed to make a one-time contribution of up to $ 75,000 (in 2021) for a beneficiary in one year instead of five annual contributions of up to $ 15,000 without using any of your tax exclusions. for life on donations.

Fact n ° 3 – Contributions can come from a variety of people. Parents are frequently the initiators of 529 plans, but not always. These plans allow virtually anyone to make contributions for the benefit of a chosen person. Very often, grandparents do it for their grandchildren. This can be an effective way to reduce the size of their estate, while making a real difference in the future of their grandchildren. Friends and other family members are also free to contribute to these plans.

Fact No. 4 – There are a myriad of “eligible education expenses”. It is important to limit withdrawals to eligible expenses in order to avoid any taxes or penalties. For college costs, this includes tuition and fees, books and other learning materials, including laptops and related equipment. A student’s room and board is another eligible expense, provided the student attends at least part-time. If the accommodation is off-campus, the college will provide a “cost of attendance” figure to determine what portion of the accommodation costs are considered an eligible expense. Additionally, $ 10,000 per year can be used to pay for K-12 tuition, and a lifetime total of $ 10,000 can be used to pay off a person’s student loans.

Fact No. 5 – Remaining Money Can Be Used In Other Ways If there is money left in a 529 that is not being used by the designated student, the beneficiary can be changed to another eligible family member. Funds can remain in the account indefinitely for the potential tuition fees of the first student or another family member later in life, including you. Unused funds can be distributed as a non-qualifying withdrawal, but taxes and penalties generally apply on the winnings portion of the account.

Start today

The sooner you start saving in a 529 plan, the more you can accumulate for the benefit of the students you seek to support. Your financial advisor can help you assess your options and determine how this education savings strategy fits into your broader financial plans.

Bronwyn L. Martin is a Financial Advisor and Chartered Financial Consultant® with Martin’s Financial Consulting Group, a financial wealth advisory practice of Ameriprise Financial Services LLC in Kennett Square and Havre de Grace, Maryland. She specializes in financial planning and asset management. strategies and has been in practice for over 21 years. To contact her: www.ameripriseadvisors.com/bronwyn.x.martin.