High Scores for 529 College Savings Program

newsroom@tri-statedefender.com | 6/10/2014, 10:15 a.m.
Major benefits   These savings plans generally allow people of any income level to contribute, and there are no age limits for the student. The account owner can maintain control of the account until funds are withdrawn – and, if desired, can even change the beneficiary as long as he or she is within the immediate family of the original beneficiary. A 529 plan is also extremely simple when it comes to tax reporting — the sponsoring state, not you, is responsible for all income tax record keeping. At the end of the year when the withdrawal is made for college, you will receive Form 1099 from the state, and there is only one figure to enter on it: the amount of income to report on the student's tax return.   Benefits for grandparents   The 529 plan could be a great way for grandparents to shelter inheritance money from estate taxes and contribute substantial amounts to a student's college fund. At the same time, they also control the assets and can retain the power to control withdrawals from the account. By accelerating use of the annual gift tax exclusion, a grandparent – as well as anyone, for that matter – could elect to use five years’ worth of annual exclusions by making a single contribution of as much as $70,000 per beneficiary in 2014 (or a couple could contribute $140,000 in 2014), as long as no other contributions are made for that beneficiary for five years. (If the donor makes the five-year election and dies during the five-year calendar period, part of the contribution could revert back to the donor's estate.) If the account owner dies, the 529 plan balance is not considered part of his or her estate for tax purposes.   As with other investments, there are generally fees and expenses associated with participation in a Section 529 savings plan. In addition, there are no guarantees regarding the performance of the underlying investments in Section 529 plans. The tax implications of a Section 529 savings plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also note that most states offer their own Section 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.   By comparing different plans, you can determine which might be available for your situation. You may find that 529 programs make saving for college easier than before.   (Charles Sims Jr., CFP, is President/ CEO of The Sims Financial Group. The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.)