529 Plan Defined - A 529 Savings Plan for education is a state-sponsored program designed to help finance education expenses. Section 529s are administered by certain investment companies and subject to contribution requirements and investment guidelines. Withdrawals from the account are taxed at the child's tax rate, and anyone can contribute to a Section 529, regardless of their income level. Within the Plan, the money can be invested in a portfolio of various types of investments, such as stocks, bonds,mutual funds or a combination of all. Most states offer Section 529 plans. The proceeds can be used only for education purposes. Withdrawals for non-educational purposes trigger taxes and a 10% penalty. The investment company administering the account will be in control of how the money is invested, and will charge an ongoing fee for its services.
529 Plan for Education
All of the 529 savings plan contributions and earnings grow free from federal income taxes.
Pay no Federal income taxes when you withdraw your money to pay for qualified higher educations expenses.
Parents, grandparents and other relatives can contribute up to $11,000 per year ($22,000 for married couples) without incurring federal gift taxes.
You can contribute up to $55,000 ($110,000 for married couples) in a single five-year period without incurring gift-taxes, as long as there are no further gifts to the child in the same five-year period.
Control and Flexibility
529 College Savings Plan is a better way to plan for college because it gives you a broad range of flexibility and control.
Open a 529 Plan account regardless of age or income level. Any U.S. citizen or resident alien is eligible.
This Plan has a high contribution limit. Currently, you may contribute to an account until the balance reaches $265,000.
Build your account over time by enrolling in the automatic contribution plan, which allows you to transfer funds from your checking or savings account into your 529 Plan account.
Use your money at almost any accredited school in the country. This includes public and private colleges, universities, community colleges and most vocational and technical schools.
Pay for tuition, room and board, books, computers and required supplies.
You keep control of the assets through the life of the account unlike traditional Uniform Transfers to Minors Act/Uniform Gifts to Minors Act (UGMA/UTMA) accounts in which assets are legally transferred to the beneficiary's control upon reaching age of majority (usually 18 or 21).
Change beneficiaries, as often as needed - without penalty - you can replace the current beneficiary with another member of the beneficiary's family. You'll simply be redirecting the use of the leftover 529 money to a brother, sister, first cousin, etc. The definition of "family member" is actually quite broad and also includes the beneficiary's father, mother, aunt, uncle, and son or daughter, as well as any of their spouses.
You can even change the beneficiary to yourself or your wife. For example, you could spend the money on adult education classes at your local community college.