How Section 529 Plans Can Help With Your College Savings

529-college-savings-planThese days saving for college can be harder than saving for retirement. Consider Section 529 Plans which offers various tax advantages.

Section 529 Plans are state-sponsored college savings plans that allow you to set aside money for your child’s education and let it grow tax-free. Each state sets its own lifetime contribution limit, which ranges between $100,000 and $300,000+. Traditional “prepaid tuition” plans cover specific units of tuition such as a credit hour or course. Newer “college savings” plans invest contributions in mutual funds for potentially higher growth, generally adjusting portfolios from stocks to bonds and cash as your child ages. You can choose any state’s plan; however, some states offer deductions for contributions to their own plans.

Contributions you made are considered complete gifts for gift tax purposes. You can contribute up to $14,000 per year per student, or $28,000 jointly with your spouse (2013), with no gift tax effect. You can give a beneficiary up to $70,000 in a single year or $140,000 jointly with your spouse (2013), so long as you give no more for the next four years. Plan assets aren’t included in your taxable estate unless you “front-load” contributions in a single year then die before the end of that period.

You can use the money in a 529 plan at any accredited college or university in the country – public or private, graduate or undergraduate. And it can be used for tuition, fees, room and board, books, supplies, and equipment. The federal government won’t tax your money when you take it out of the account, as long as it’s used for higher education. Withdrawals not used for college are taxable only if they exceed contributions.

If you lose money in a 529 plan, you can close your account and deduct the loss as a miscellaneous itemized deduction. You can transfer accounts from one plan to another, but not more than once per year.

If you’re saving for college and you own permanent life insurance, you can stuff savings into your policy and take tax-free cash for college. If you later surrender the policy, any gains exceeding your total premiums are taxed as ordinary income when you surrender the policy.

If you have any questions regarding how Section 529 plans can help you with college savings, please do not hesitate to contact us.

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