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The 529 savings plan: A tax-smart way to fund college expenses

November 4, 2015

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If you’re saving for college, consider a Section 529 plan. Although contributions aren’t deductible for federal purposes, plan assets can grow tax-deferred. (Some states do offer tax incentives for contributing.)

Distributions used to pay qualified expenses (such as tuition, mandatory fees, books, equipment, supplies and, generally, room and board) are income-tax-free for federal purposes and typically for state purposes as well, thus making the tax deferral a permanent savings.

529 plans offer other benefits as well:

  • They usually offer high contribution limits, and there are no income limits for contributing.
  • There’s generally no beneficiary age limit for contributions or distributions.
  • You can control the account, even after the child is of legal age.
  • You can make tax-free rollovers to another qualifying family member.

Finally, 529 plans provide estate planning benefits: A special break for 529 plans allows you to front-load five years’ worth of annual gift tax exclusions and make up to a $70,000 contribution (or $140,000 if you split the gift with your spouse).

The biggest downside may be that your investment options — and when you can change them — are limited. Please contact us for more information on 529 plans and other tax-smart strategies for funding education expenses.

© 2015

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

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