Paying for a child’s or grandchild’s college education is an expensive proposition, even for families that have saved diligently in pursuit of their goal. The 529 plan offers a tax-advantaged investment vehicle that offers both college funding and estate planning benefits1.
Both types are generally sponsored by a state government and administered by one or more investment companies. Contributions are made on an after-tax basis, but withdrawals used for qualified undergraduate or graduate school expenses are federal income tax-free. Withdrawals for other purposes are subject to ordinary income taxes, a 10 percent federal penalty tax and possible state taxes. Eligibility to contribute is not limited by age or income, and total contribution limits often exceed $200,0002.
529 plans can support a long-term gifting strategy while providing significant control over assets that have been removed from a taxable estate. Tax rules permit individuals to give $14,000 to as many individuals as they choose each year without triggering the need to file a federal gift tax form.
Consult your WoodmenLife Financial Representative3, and an estate planning specialist or professional tax advisor to determine the best strategy on how a 529 plan may help you pay for college expenses while also complementing your estate planning goals.
Investors should carefully think about plan investment goals, risks, charges, and expenses before investing. Be sure to consider whether your or your beneficiary’s home state offers benefits that are only available for residents who participate in its qualified tuition program. By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state’s plan.
Your WoodmenLife Financial Representative can also assist you with any questions you may have about 529 plans.
WEB62 - 4/1/2019