A great way to save for your child’s education can be through a 529 plan. A 529 savings plan has tax advantages, flexibility and the money can be used for many qualified higher education expenses.
529 plans are state-sponsored plans, not Federal plans. But you don’t have to live in that state to invest in their 529 Plan.
And no matter which state plan you choose, a 529 offers multiple savings and tax incentives including:
- Earnings have the potential to grow tax-deferred, although contributions are not deductible on your federal tax return.
- Withdrawals are Federal income tax-free if used for qualified higher education expenses.1
- Contributions of up to $14,000 (in tax year 2015) are allowed without incurring federal gift tax.
- Compared to a normal “gift,” your 529 contribution leaves your estate but does not leave your control. The account owner decides when withdrawals can be made and for what reason and can even change the beneficiary.
Regardless of which State may issue it, all 529 plans:
- Can be used to pay for tuition, books, room and board, equipment and many other qualified higher education expenses at eligible institutions.
- Eligible institutions include four-year colleges, two-year colleges, technical and vocational schools and U.S. graduate schools (plus some overseas, too).
- The account owner (called the participant) maintains control of the assets, regardless of the age of the student.
- Thinking of going back to school? You can set up a 529 plan for yourself!
- Anyone can contribute – friends, family, yourself.
- No income restrictions.
- Many states offer additional benefits to their residents for using their state’s 529 savings plan.
Some of the specific Federal tax advantages of a 529 plan include:
- Any growth or earnings in your account is tax-exempt if used for higher education.
- The only tax reporting required is upon withdrawals (Form 1099-Q).
- In tax year 2015, you can contribute up to $14,000 a year for single filers, $28,000 for a couple to each beneficiary without gift tax consequences.
- In tax year 2015, you can contribute, as an alternative, a lump sum of up to $70,000 ($140,000 for married couples filing jointly) every five years free from gift taxes.
- Maximizing tax-free growth potential specifically for college or other post-secondary educations including graduate school and technical school.
- Account owners who want flexibility and control of assets.
- Maximizing contributions.
- Students of any age – including career changers.
- Grandparents and other family members to create an educational legacy for a child while removing assets from estate tax.
Any US resident
There are no income restrictions for making a contribution
Must have a Social Security number or tax ID.
Fees & Charges
Fees may vary by each state's plan and the investment options they offer.
This material is provided for general and educational purposes only; and is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal or financial advisor for specific advice about your individual situation.
The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
You should consider the investment objectives, risks, and charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's prospectus and should be read carefully before investing.
Before investing, the investor should consider whether the investor's or beneficiary's home state offers any state tax or benefits available only from that state's 529 Plan.
1Non-qualified withdrawals may be subject to federal and state taxes and an additional federal 10% tax.
Securities offered through Voya Financial Advisors, Inc. member SIPC.
Neither Voya nor its affiliated companies provide tax or legal advice. Please consult with your tax and legal advisors regarding your individual situation.