Understanding the Value of 529 Education Plans

529 plans aren’t just for college savings anymore. Learn more about qualified education expenses and see if a 529 is right for you.

A 529 plan offers some compelling benefits. Your money grows free from federal tax as long as the funds are used for qualified educational expenses. As of 2018, 529 plans are no longer restricted to higher education, and funds of up to $10,000 per year can be used for qualified education expenses at private K-12 schools.

Your Regions Wealth Advisor can help you compare plans and determine whether a 529 is right for you. Here are some tips that can help you make the most out of a 529 plan:

Comparison Shop.

529 plans are managed by the state. Every state manages at least one, and each plan has different rules. You can invest in a 529 from any state — not just your own. Thirty-four states, including Alabama, Mississippi and Arkansas, also provide tax breaks for 529 contributions. When evaluating a plan, consider its investment menu, contribution limits and other rules. A side-by-side comparison of 529 plans is available on SavingforCollege.com.

Understanding Gifting Rules.

Contributions to a 529 plan are treated as gifts under federal rules, meaning there is a cap on how much you can give tax-free. This cap is subject to change, so it’s best to check with the IRS to see what the current year’s gift-tax cap is. For 2018 and 2019, each person can give each beneficiary up to $15,000.

You could consider opening a 529 plan when a child is young, and then make annual contributions up to the federal annual gift-tax exclusion each year. Not only does this help you avoid the gift tax, the money has more time to grow. Under special provisions for 529s, an individual can make a one-time $75,000 contribution to a 529 plan ($150,000 for married couples) and prorate it over five years without gift-tax consequences. You will, however, have to file a Form 709, United States Gift (and Generation Skipping Transfer) Tax.*

Know Transfer Rules.

Another perk to 529s is flexibility. If your original beneficiary doesn’t use up the savings, you can transfer the savings to another member of your family and keep the tax-free growth and withdrawal benefits. You can also save them for future generations or use the money on your higher education expenses.

To open a 529 savings plan, or learn more about your options with this type of plan, call your financial advisor.

*In Order To Avoid The Federal Transfer Tax, No Further Annual Exclusion Gifts Or Generation-Skipping Transfers Can Be Made To The Same Beneficiary Over The Five-Year Period, And The Accelerated Transfer Must Be Reported On Form 709, United States Gift (And Generation-Skipping Transfer) Tax Return. If The Donor Dies Within Five Years, A Portion Of The Transfer Will Be Included In The Donor’s Estate For Estate Tax Purposes.