educationWhat is a 529 plan?

A 529 college savings plan is an investment specifically designed to help you save for college. A 529 plan can be opened for anyone – your child, grandchild, spouse, or even yourself. The plan can be used to pay for higher education expenses at any accredited college. There are generally 20 to 30 funds available inside each plan in which to invest. The earnings in the plan grow free from federal tax, and withdrawals for qualified higher education expenses are free from federal tax. You maintain ownership of the assets in the plan, even though your child may be the beneficiary of the plan. However for estate tax purposes, the money is not in your estate. Should the beneficiary decide not to go to college, you can change the beneficiary of the plan to someone else in the family, or you can withdraw the funds. However, withdrawals not used for college are subject to federal taxes as well as a 10% tax penalty on the earnings.

You may invest up to $12,000 ($24,000 for married couples) per year without gift-tax consequences, and under a special election, you can accelerate up to five years’ worth of investments and put up to $60,000 ($120,000 for married couples) into the 529 at one time without gift-tax consequences. Contributions are not deductible from your federal tax returns. The plans are sponsored by states, and all 50 states now sponsor 529 plans. However, you can choose to invest in any 529 plan.

The investment professionals at Smith, Brown & Groover, Inc. can assist you in choosing the right 529 plan for you.