529 College Savings Plans
About 529 Plans
A 529 college savings plan allows individuals to save and invest on a tax-advantaged basis in order to fund future higher education expenses for a child or other beneficiary. For more information on 529 plans, including information on different 529 plans, please contact your local financial advisor.
Possible Tax Advantages and Deadlines
In choosing among 529 plans, it's important to consider that certain states offer tax incentives to residents who invest in their home state's 529 plan. Visit www.savingforcollege.com to determine whether a state tax incentive is available in your state. For tax advice, consult with your tax professional.
The deadline to fund 529 plans and receive any state income tax deduction (if applicable) is Dec. 31, with a few exceptions. The following states allow a deduction for contributions until the state's tax-filing deadline the following year: Georgia, Mississippi, Oklahoma, Oregon and South Carolina. However, if the contribution is to be considered a gift for the current year, it must be deposited on or before Dec. 31. For tax advice, consult with your tax professional.
- Eligibility - Regardless of age, anyone who plans to attend an eligible postsecondary educational institution can be the beneficiary of a 529 plan. The account holder maintains control of the account. If the beneficiary decides not to attend a postsecondary school, the account owner may change the beneficiary to be another member of the original beneficiary's family (first cousins included). However, if the new beneficiary is not related to the previous beneficiary, taxes may apply.
- Contributions - Anyone can contribute to a 529 plan, regardless of income. Contribution limits vary by plan, but may allow up to $200,000 per beneficiary. However, contributions are gifts; therefore, the $14,000 annual gift limit per donor, per beneficiary, should be considered. In addition, a special gifting provision applies to 529 plans: You may contribute $70,000 (single filers) or $140,000* (joint filers) in one year and prorate the contribution over five years for tax purposes, until the plan's maximum contribution limit is reached. Tax forms are required for accelerated gifting; please contact your tax professional.
- Distributions - Qualified distributions are federally income tax- and penalty-free for any of the following: tuition, fees, books, supplies, room and board, and computer, software or Internet services specifically required for coursework. Withdrawals used for items other than qualified higher education expenses may be subject to ordinary income tax, plus a 10% penalty (on the earnings portion of the withdrawal).
- Tax Considerations - In addition to the tax advantages and deadlines mentioned above, earnings in 529 plans accumulate tax free, and withdrawals are federally tax-free if used for qualified higher education expenses. There also may be state tax incentives to residents who invest in their home state's 529 plan.
- Financial Aid Considerations - 529 plans may impact financial aid eligibility. These plans are considered assets of the account owner; if owned by the student or parent, 529 plans are considered parental assets, and this generally has less impact on financial aid. For more information, see Financial Aid Basics.
* If an account owner elects to treat a contribution as having been made over a five-year period and dies before the end of the five-year period, the portion of the contribution allocable to the remaining years in the five-year period (not including the year in which the account owner died) would be included in computing the account owner's gross estate for federal estate tax purposes. Account owners may be required to file a gift tax return in each of the five years. In addition, account owners may wish to consult their tax or estate-planning counsel to ensure they obtain the tax consequences they desire.
For additional information on a particular 529 plan's payment and compensation practices, please review the plan's official statement. Investors should carefully consider the investment objectives, risks, and charges and expenses associated with 529 plans before investing. More information regarding 529 plans is available in the issuer's offering materials, which can be obtained from your local Edward Jones financial advisor. Please read them carefully before investing.
Prior to investing, investors should consider whether their resident state or the resident state of the beneficiary offers any state tax or other benefits that are only available in that state's qualified tuition program.