Do You Know the 529 Plan Rules?
Here are some interesting 529 Plan rules:
- With an Education Savings Account (ESA) there are income limits on investing. With the 529 Plan your income does not impact your 529 plan eligibility.
- Contributions to 529 plans qualify for the $11,000 ($22,000 for couples) annual gift tax exclusion.
- You can contribute up to five years of gifts in the 529’s first year.
- You can contribute as little as $25 a month to a 529 plan.
- In most 529 plans, there is no age limit or time limit for using the money.
- You can roll the account over to another child in the same family of the first beneficiary. Family here means the original beneficiary’s spouse, children, sisters, brothers, nephews, nieces, first cousins, and the spouses of these family members.
- The beneficiary can use the money for any accredited degree-granting educational institution – public, private, two-year, or four-year.
- If the beneficiary gets a scholarship, dies, or is disabled the 529 account can be rolled over to another family member or it can be cashed out. However if you cash it out, you have to pay taxes.
- You cannot use your 529 plan account as collateral for a loan.
- If you withdraw the money for reasons other than paying for qualified higher education, you pay tax plus a 10 percent penalty.
- 529 contributions have to be cash. You cannot roll stocks into it.
- 529 accounts are considered gifts. This means that they are not considered as part of your estate assets.
- Each beneficiary must have an individual account. Family members cannot share an account but if the beneficiary does not use his or her 529, then it can be rolled over to another family member.
- Each state has different rules about 529 tax breaks.
- Some states have higher 529 expenses such as enrollment fees, annual maintenance fees and program management fees.