The Versatile 529 Plan
PREPARING FOR HIGHER EDUCATION

Features of the 529 plan make it a great component for both Individual Savings Plans and Employee Benefit Programs.

Tax-Free Earnings Growth: There is no income tax due on any earnings while they are in your 529 Plan.

Tax-Free Distributions: Distributions put towards qualified education expenses made after December 31, 2001 are federal income tax free.

Any Institution in the United States: 529 assets can be used at any accredited institution of higher learning in the United States, as well as many foreign institutions.

No Income Limits: There are no income limits restricting participation.

Investment Choice: 529 Plans have various investment options you can choose from depending on your preferred investing style.

High Contribution Limit: Though the amount varies from plan to plan, you can typically contribute $225K or more to your 529 Plan.

Beneficiary Flexibility: You can change the beneficiary of your account to any other member of the original beneficiary's family, including a parent, at any time with no penalty.

Withdraw Funds at Any Time: Withdrawals can be made from your account at any time, but if the withdrawal is not used for a qualified education expense, the earnings will be taxed as ordinary income to the participant and a 10% penalty or additional tax will be assessed on any distributed investment gains.

Special Gift and Estate Tax Treatment: Contributions to your 529 are considered completed gifts for federal and estate tax purposes and can be excluded from your taxable estate.

A Great Benefit: A 529 Plan can be an integral part of an employee benefit program with payroll direct deposit.

Options for unsused plan funds

If you save too much and end up with unused funds in a 529 plan, you have several options:

Withdraw the funds . You’ll have to pay taxes and any penalties, but you can use the money for whatever you want. Note: If your child receives a scholarship, you can withdraw that amount subject to taxes, but not penalties.

Designate a new beneficiary . This can be another one of your children, a relative outside your immediate family, or even you or your spouse. Remember, 529 plans aren’t just for kids. You can also use them for continuing education or for certain trade school programs.

Hold on to the plan . You may be able to use it for a grandchild who hasn’t yet been born.

Pay off student loans . You can also withdraw 529 funds tax- and penalty-free to pay down student loan debt, up to a lifetime maximum of $10,000 per beneficiary.

What are the estate planning benefits?

Although 529 plans are primarily education savings accounts, they also offer some surprising estate planning benefits. Traditional estate planning vehicles, such as irrevocable trusts, require you to relinquish most control over the assets they hold to insulate them from estate tax. Contributions to 529 plans, like trusts, are considered completed gifts, so they’re removed from your taxable estate. Unlike trusts, however, you maintain a great deal of control over the funds. For instance, you can direct the timing and amount of distributions, change the beneficiary, transfer the funds to another 529 plan, or even close the account and get your money back (subject to taxes and penalties).

Although 529 plan contributions are subject to federal gift tax, they qualify for the annual gift tax exclusion of $18,000 per recipient ($36,000 for gifts split with a spouse). But unlike other vehicles, they can be front-loaded with up to five years of annual exclusions. So you can contribute as much as $85,000 ($170,000 for married couples) to a 529 account in one year without triggering gift taxes or using any of your lifetime gift and estate tax exemption. This is particularly valuable now, because the exemption — currently $13.61 million — is scheduled to be cut in half in 2026.