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529 Savings Plans

College Planning > 529 Savings Plans

529 College savings plans are tax-advantaged programs that help families save for college. Almost every state offers at least one 529 plan, and many of these plans are open to non residents. The tax advantages, investment options, restrictions, and fees vary from state to state. You can find links to 529 plan web sites at http://www.collegesavings.org or call your Place Trade financial representative for more information.

College savings plans allow for students of all ages to save for college costs, including tuition, fees, room, board, textbooks, and computers. College savings plans are not just for children, adults considering going back to college or graduate school can open a plan. Should you end up not attending school, money can be transferred tax-free to another 529 plan for your children, your spouse, or another family member.

You may also reduce your exposure to federal estate taxes while funding the college education of your loved ones. Contributions are treated as completed gifts for tax purposes allowing you to transfer assets out of your estate. Currently you may contribute up to $11,000 per child per year gift-tax free ($22,000 for married couples filing jointly). You may make a one-time contribution of up to $55,000 per beneficiary ($110,000 for married couples filing jointly)in the first year of a five year period, provided that no other gifts are made to the beneficiary during the same five year period, and average the gift over the next five years.

For more information visit www.irs.gov.

Not Limited to In-State Public Colleges or State Residents

Many states offer college savings plans that have no residency restrictions and may be used at most colleges and universities throughout the country, including graduate schools. However, you may want to check on the tax advantages in the state you reside, or you may miss out on these advantages should you opt for another state’s 529 plan.

Qualified Education Expenses

College savings plans usually cover the following expenses at eligible colleges, universities, and other post-secondary institutions:

Contribution Limits

Contribution limits are varied by the maximum and minimum contribution limits set by the plan. Maximum amounts of contributions vary from state to state and most states offer very flexible minimum contribution limits. If you would like to increase the amount of contribution of the plan you are interested in (determined by the state), you can open a second college savings plan. Currently, the IRS only requires that contributions for one child cannot be more than the amount necessary for the qualified higher education expenses of that child. Many plans have contribution limits in excess of $200,000.

Investment Options

Each plan will give you a number of investment options allowing you to invest in various portfolios of mutual funds. Some offer age-based portfolios of mutual funds; from high risk when the child is young with higher potential returns to a gradual shift to conservative as your child grows older.

Many states also offer non-age based investment options, allowing you to select portfolios with conservative, moderate, and aggressive asset allocations. In some cases certificates of deposit are offered whose interest rates are linked to an index that measures the average cost of college tuition.

The IRS allows you to change your investment options once every calendar year, although not all plans have made the changes to permit this. Check with the plan you are considering to confirm changes to investment options every year.

Investment Risk

As with any investment, investing in college savings plans do come with risk. They do not lock in tuition prices, nor does the state back or guarantee the investments. You could lose money in a declining market, or the plan may not grow enough to pay for college.

Fees, Charges, and Expenses

All 529 plans have various fees and expenses. Fees vary among funds and some plans have different classes similar to mutual funds. (Class A, B, or C)Refer to the offering document for complete information on different classes of funds, fees and expenses.

The most common fees, charges, and expenses include:

Federal Tax Advantages

One of the biggest advantages of 529 plans are the tax advantages they offer and there are no income limitations.

Contributions that are in excess of the gift tax exclusion may be subject to the federal gift tax. The donor must live a full five years in order to benefit on estate taxes. See the offering statement for details. Consult your tax advisor to discuss your specific situation prior to investing.

Deductibility limits can be confusing and tax laws are frequently changing. It is always best to review your specific situation and/or circumstances with a qualified tax advisor.