529 Plans Offer Tax Benefits for College SavingsDecember 26th, 2012
College savings plans known as ‘529 plans’ are gaining in popularity, with over 2 million new participant families in the past five years, but they remain relatively little-known. A recent Edward Jones survey found 62 percent of parents surveyed did not know what a 529 plan is.
A 529 plan is a college savings account that allows investments to appreciate, earn interest and dividends, and be withdrawn free of federal income taxes provided the funds are used to pay for higher education for a designated beneficiary. This includes tuition, books, fees and room and board at most colleges, universities, graduate schools, and vocational schools throughout the country.
The designated beneficiary of your 529 plan account need not be related to you. It can be set up for a child, grandchild, friend, or even yourself. The minimum contribution is just $25.
Capital gains tax rates may see significant increases in the near future, which would make 529 plans all the more attractive for their tax-free growth potential.
Contributions to 529 plans may not be deducted from federally taxable income, but many states, including New York, allow state tax deductions. New York allows deductions for 529 contributions of up to $10,000 per individual or $20,000 per couple. Contributions are subtracted directly from your gross income for tax purposes, meaning you do not have to itemize deductions to save on state taxes.
Also of interest to some is the fact although assets within a 529 plan may be reclaimed, they are not considered part of the contributor’s gross estate for estate tax purposes, allowing the plans to be used for estate planning purposes.
New York’s 529 program allows investors to choose from three age-based investment options that each gradually become more conservative as the beneficiary nears college age. Alternately, investors may design and manage their own investment strategy by allocating assets among 13 individual portfolios.
For more information, visit www.specialneedsnewyork.com