[vc_row][vc_column width=”1/1″][vc_column_text]529 Education Savings Plans are a popular college savings program. To get the maximum benefit, you need to begin sooner rather than later with these accounts.

Anyone can set up a plan at any time, regardless of income or wealth, through virtually any financial institution as well as most insurance companies. While contributions to a 529 plan are not deductible for federal income tax purposes, the earnings on the account are not taxable. This means that the longer the account exists, the greater the benefit. Some states allow a deduction for state income tax purposes.[/vc_column_text][divider line_type=”No Line” custom_height=”35″][vc_text_separator title=”What it Covers” title_align=”separator_align_left”][vc_column_text]The types of educational expenses allowed for a 529 plan are generally tuition, fees, room and board, books and supplies. If the student has secured off-campus housing that is not part of university housing, the amount of housing to be paid out of the 529 plan should not exceed the average cost of housing offered by the university. Computers are allowed if the university requires them for university attendance. Costs of laptops, iPads, Internet service and software may be allowed if a student receives scholarships.[/vc_column_text][divider line_type=”No Line” custom_height=”35″][vc_text_separator title=”Contributions” title_align=”separator_align_left”][vc_column_text]The amount that can be contributed into a 529 account cannot exceed the amount necessary to provide for the qualified education expenses of the beneficiary. The IRS does not give you a precise maximum contribution figure for each 529 plan. Because of this, there appears to be little policing by the IRS of amounts going into the 529 plans.

A contribution into a 529 plan is treated as a “gift” for gift tax purposes. The annual exclusion limitation ($14,000/year) relates only to gift and estate tax planning and has nothing to do with the actual limit on how much can be contributed to a 529 plan. High net-worth individuals can front-load a 529 plan with the current year’s gifting amounts plus four future years. That equates to five years of annual exclusion amounts, which would be $70,000 (5 x $14,000) for each individual for whom an account is established.

If you exceed the $14,000 per year, per beneficiary, gift tax exclusion ($70,000 if you front-load) it will simply utilize some of your estate and gift tax credit (again, over $5 million currently) but will not trigger a gift tax liability, assuming you still have some of your $5 million-plus estate and gift tax exemption.[/vc_column_text][divider line_type=”No Line” custom_height=”35″][vc_text_separator title=”Limitations” title_align=”separator_align_left”][vc_column_text]529 plans can be established either as a prepaid tuition plan or as a savings plan. If the funds are not utilized for education purposes, they can be returned to the custodian of the account, but this triggers income tax and a 10% penalty. If you have multiple children, you can move the funds down — eventually to your youngest child — with no tax or penalty.

Also be aware that 529 plans can impact a student’s financial aid qualification. They must be reported on the federal financial aid application (FAFSA) as an asset of the parent.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width=”1/1″][/vc_column][/vc_row]