c. What is a 529 College Savings Plan?
Experts agree 529 college savings plans are one of the best ways to save for college. Created by the federal government to encourage families to prepare for the expense of college, 529 plans reward investors with important benefits that you may not get from other ways to save. 529 plans are more than just savings accounts. They offer unique state and federal tax benefits you can’t get from other ways to save. When you save for college you are setting an expectation of college attendance—showing your child, your grandchild or yourself that college is in the future!
Your savings grow tax-free
Earnings used for qualified higher education expenses are federal and state income tax-free, so every dollar you save for college can work harder.1
Use your savings at colleges nationwide
You can use your savings nationwide at any 529 eligible education institution – public or private college, university or vocational school to pay for qualified higher education expenses such as tuition, fees, certain room and board, and required supplies. From Boston to Boise, Alaska to Nebraska or anywhere in between, your savings go with you.
Start small, save big, start at any time
With Colorado’s CollegeInvest 529 College Savings Program, you can open an account with as little as $25 and contribute $15 or more as often as you like or are able. The big thing is to start saving sooner rather than later. To make it easier to contribute regularly, you can make automatic transfers from your checking or savings account. Creating a savings routine will help you stick with your long-term plan and ultimately help you meet your savings goals.
Estate planning benefits
With the special gift tax election, you can contribute up to $65,000 per person or $130,000 per married couple, per beneficiary in a single year, without incurring a federal gift tax impact. That’s five times the annual gift tax exclusion.2
You’re in charge
You never lose control of your account, so you can be sure your savings are spent wisely. You decide when and how money is withdrawn to pay for college. If your student decides not to attend college, you can name a new beneficiary or choose to leave the funds in the account. If you need your savings for another purpose, you can withdraw the funds. However, there can be penalties and tax consequences for non-qualified withdrawals.
1 The earnings portion of a non-qualified withdrawal is subject to federal income taxes and any applicable state income tax, as well as an additional 10% federal penalty tax.
2 Contributions between $13,000 and $65,000 per individual ($26,000 and $130,000 per couple) made in one year can be prorated over a five-year period without incurring gift taxes or reducing your unified estate and gift tax credit. If the account owner dies before the end of the five-year period, a prorated portion of the contribution will be included in his or her taxable estate. If you contribute less than the $65,000 maximum, additional contributions can be made without incurring gift taxes, up to a prorated level of $13,000 per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given student in the year of contribution. Account owners should consult their tax advisor regarding their individual situation.