The benefits are impressive:
- State Income Tax Savings: Contributions to a 529 plan may reduce your state income tax liability, depending on the state. Visit savingforcollege.com to see how it works in your state.
- Tax-Deferred Earnings: Earnings on 529 accounts are tax deferred and, if used, for qualified higher education expenses — such as tuition, room and board and related expenses — are federal income tax-free.
- Favorable Estate Tax Treatment: Because assets held in a 529 plan are generally not subject to federal estate tax, any contributions made to the program aren't included in your estate.
- Accelerated Gift Tax Treatment: Since 529 plans qualify for a special gift tax exclusion, you can contribute up to $13,000 to each beneficiary's account annually without gift tax consequences. Or you can contribute a lump sum of up to $65,000 ($130,000 for married couples) once per five-year period without paying gift tax.
- Creditor Protection: In some states, money invested in a 529 plan is protected from creditors in case of bankruptcy or lawsuit settlements.
Got further questions? Catch me on twitter and DM me @529SavingsPlans or e-mail me at 529CollegePlans at Gmail.com. Want to be heard? Leave a reader comment below.
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