New Rules for 529 Plans

New Rules for 529 Plans

529 plansEasing the burden of paying for education

The Tax Cuts and Jobs Act of 2017 will expand the use of 529 Plans to allow savers to accumulate money and pay for education on a tax-free basis. Before we discuss the changes let’s review the basics. A 529 Savings Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs.  You are not required to use the 529 in your domicile state and your plan, regardless of which state is the sponsor, can be used for any college in any state.  Contributions to a 529 Plan are invested and grow tax deferred.  If the funds are ultimately used for education, distributions come out federally tax-free. Contributions to the plan qualify for the $15,000 annual gift tax exclusion.  The Plan has to have a named donor and a designated beneficiary. The donor of a Plan retains control indefinitely and only the donor can request withdrawals and can close the account at any time.  However, if the funds are used for anything other than education, the earnings portion of the account is subject to income tax plus a 10% penalty.  Most plans allow for lifetime contributions of $300,000 or more.
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