529 COLLEGE SAVINGS
529 College Savings Plans
College is expensive. But the investment in education could lead to personal growth, a rewarding career and a fulfilling life, not to mention increased earning potential.
Help Your Loved Ones Save for College.
If you’re looking to save money for a child’s education, whether it’s months or years ahead, a 529 plan can help pay for education-related expenses. A 529 plan is a tax-advantaged savings account designed to be used for the beneficiary’s higher education expenses. When the time comes, the money in the account can be used for college expenses and even loan payments. With 529 plans, the plan owner maintains ownership of the account until all of the money is withdrawn.
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Basic Benefits of 529 College Savings Plans
Families who want to invest for higher education are turning more and more to 529 College Savings Plans because of the potential tax advantages and opportunity for growth1.
529 College Savings Plans are named for the section of the federal tax code that governs them. The plans are usually operated by investment companies for a sponsoring state, although potential investors don’t have to be a resident of that particular state to open a 529 plan2.
Anyone can open a plan – parents, grandparents, aunts, and uncles can contribute money toward an account set up on behalf of a future college student. The money is then invested in one or more portfolios, which the plan owner can select.
Answers to Your 529 College Savings Plans
With so many choices available in 529 College Savings Plans, and so many differences among plans, you’re likely to have questions about how specific features relate to your situation.
529 College Savings Plan Advantages
Tax benefits on earnings
Interest can accumulate on a federal income tax-deferred basis, which means assets can potentially compound faster than if they were in a taxable investment (money you’d otherwise pay out in taxes remains invested).
Tax benefits on withdrawals
In addition, withdrawals are free from federal income taxes when used for qualified higher education expenses3. They may be exempt from state income taxes, as well, but rules vary from state to state, so talk to your WoodmenLife Financial Representative and tax advisor4.
Whoever opens the account retains ownership. So if the intended grandchild receives a full-ride scholarship, for example, the account can be transferred to another grandchild, the parent or other qualified person for their educational expenses.
Most plans give the account owner the choice to invest in a portfolio based on the intended beneficiary’s age or the flexibility to customize their investment fund options.
Control over the money you invest
As the plan owner, you can change the beneficiary at any time, you can adjust your initial investment selections and only you can request withdrawals.
There are generally no income restrictions governing who can contribute to a 529 plan. Many plans have aggregate plan asset limits of more than $200,000. In other words, once contributions reach that limit of $200,000, no further contributions are allowed.
Estate planning features
A contribution to a 529 plan is generally considered a completed gift from you to the plan beneficiary. That means the money is no longer part of your taxable estate, and contributing regularly may be an effective estate planning strategy5.
529 College Savings Plan Advantages
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.
Connect with WoodmenLife
Your WoodmenLife Financial Representative can also assist you with any questions you may have about 529 plans.
The availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions or other factors.
By investing in a 529 plan outside of your state of residence, you may lose any state tax benefits. Non-qualified withdrawals are subject to federal and state income tax and a 10% penalty. 529 plans are subject to enrollment, maintenance, management fees and expenses. Contact your tax advisor for details.
The earnings portion of non-qualified withdrawals is subject to federal income tax, a 10% federal tax penalty, and state taxes and penalties.
WoodmenLife, its employees and Representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
This is a general example and does not take into account individual financial circumstances. If the contributor dies within the five-year period, a prorated portion of the contribution may be included in the taxable estate. For substantial transfers, the generation-skipping tax may apply if a beneficiary is two or more generations below the donor.
WEB59 - 1/11/2022