Page 29 - Means Wealth 2020/2021 Perspectives

529 PLAN BASICS

o what is a 529 plan? It is a tax-advantaged way to save for education
S expenses. The cost of a college education is a significant expense and,
for some families, could end up costing more than a small home. A 529
plan resembles a Roth IRA. You put after-tax money into the 529 account
and invest those funds based on time horizon and risk parameters for the
future student. As the money grows, it does so tax free. Then, assuming you
withdraw the money under the qualifying guidelines, the withdrawals will
“
also be tax free.
Benefits of a 529 Plan
The most important
1. Tax advantages things are the hardest
a. Under a special five-year gift to say, because words
rule, you may be eligible diminish them. “
to make a special gift-tax - Stephen King
election and make larger
529 contributions (up to
$75,000 for individuals or $150,000 for married couples) for each
beneficiary in a single year without federal gift tax consequences.
This makes 529 plans an effective way to reduce your estate taxes
while also making a gift to a child or grandchild.
b. Some states also offer tax deductions for 529 contributions.
2. Flexibility
a. 529 plans can be transferred to another family member.
3. Favorable financial aid treatment.
4. Withdrawals are tax free when you follow certain guidelines.

529 Plan Withdrawal Tips (to keep withdrawals tax free)

• Make sure your withdrawals do NOT exceed your child’s adjusted
qualified expenses.
• Know what expenses qualify – tuition and fees are considered required
expenses, but there may be limitations to room and board if your child
lives off campus.
• Keep good records of the child’s qualified expenses.
• Withdraw funds from your 529 college savings account in the same tax
year as you pay the qualified expenses.

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