A 529 plan is designed to encourage early and consistent savings efforts by offering an easy, affordable and convenient way for families to save for college. While the tax advantages are one of the primary benefits, states also offer a variety of features and benefits to help families reach their college savings goals.

  • All withdrawals are exempt from federal income tax when used for qualified higher education expenses.
  • All money grows free from federal and state income-tax.
  • Many states also exempt withdrawals from state income-tax for qualified higher education expenses.
  • The account holder retains control of the assets within the program regardless of beneficiary’s age.
  • Most plans have very low minimum monthly contribution limits making them attractive to families regardless of income level. Some states have minimum limits as low as $15.
  • The beneficiary can be changed at any time to another member of the beneficiary’s family (out to first cousins).
  • Money can be used at virtually any accredited college in the country. You can find qualified schools on FAFSA’s website.
  • Money can be used to pay for a variety of college expenses, including tuition, fees, room, board, books, supplies and required equipment.
  • Contributions can be made conveniently through payroll deduction or automatic transfers from a bank account.
  • Many plans offer maximum contribution limits of $300,000 or more.
  • Assets within 529 plans are protected from bankruptcy.
  • Most states offers a low cost plan that can be opened by contacting the plan directly.
  • Many 529 plans are also offered through professional financial advisors who can help you choose a 529 plan and an investment strategy to meet your needs.
  • Account owners can make a lump sum contribution of up to $75,000 per beneficiary or $150,000 if married filing jointly and avoid incurring a Gift Tax on this amount by electing to use five years of the annual gift tax exclusion all in one year. After utilizing this provision, the annual exclusion cannot be used again for the same beneficiary until the five year period has passed. Should a donor die within those five years, a pro-rata amount of the gift will revert back to their estate and be treated as a taxable gift.
  • To better understand how 529 plans fit within the U.S. Department of Education Federal Financial Aid formula read: CSPN Report: Financial Aid Process Favors Saving for College May 2011