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Section 529 College Savings Plan

When investing for your child's education, consider using a tax-deferred account because taxes on the interest and earnings are deferred until withdrawal. Money that would have been paid toward current income taxes in a taxable account remains in the tax-deferred account to compound over time. Remember, the value of your investment will fluctuate so that when withdrawn, it will be more or less than the original cost.

A Section 529 plan is a flexible program created specifically to help people accumulate money to pay higher-education costs. It offers key incentives such as tax-free distributions when used for qualifying higher education expenses, flexibility and investor control. With most Section 529 plans, you can use the money at any school in any state. Generally, money accumulated in most plans can be used for room, board, books and supplies at any accredited two-year or four-year college or university, or post-secondary vocational training program in the United States.

Also, you can invest without income restrictions. Anyone (parent, grandparent or others) can establish a Section 529 account, regardless of the income level or beneficiary’s age. This may be ideal for high-net-worth investors to help reduce estate taxes while contributing to a child's education.

You can also realize enhanced gift tax benefits. You are permitted to contribute to a Section 529 plan, up to $60,000 for each child (beneficiary) in a year ($120,000 for married couples filing jointly) without gift tax consequences. The $12,000 per year gift tax exclusions is prorated, therefore, no other gifts are allowed to that child for a five-year period without gift tax consequences.

Additionally, you can withdraw earnings tax free. Investment earnings, when withdrawn for qualifying education expenses, are tax free. Any earnings proceeds that are not used for education or given to another beneficiary for education will be subject to income taxes

And, you retain control of the investments. You control how the money is distributed among the investments available in the plan (limited to changes once per year.)

Another benefit is that you can change the beneficiary at will if the new beneficiary is a family member of the original beneficiary. So if one child does not use all of the money for education, you can designate it for another family member. 

Please note, Section 529 plans are municipal securities, may lose value and are not government or FDIC insured. The value of an investment in a Section 529 plan will fluctuate and when withdrawn, may be worth more or less than its original cost. There is no guarantee that the plan will grow to cover college expenses. 529 plans are subject to enrollment, maintenance, administration/management fees and expenses.

Please note that some state tax regulations do not exempt the distributions from 529 plans from state income tax for education at schools outside the state. Please consult your tax advisor for further information.