A. 529 plan is a concept operated by a state or educational institution, with tax benefits and potentially other incentives to make it easier to save for college and other post-secondary training for a chosen beneficiary, such as a child or grandchild.
2.Q. What is the main advantage of a typical 529 plan?
A. Earnings aren’t subject to federal tax and usually not subject to state tax when used for the qualified education expenses of the selected beneficiary, like tuition, books, fees, as well as room and board.
3.Q. How long have 529 plans been around?
A. the plan was created by congress in 1996 and they are named after section 529 of the Internal Revenue code “Qualified tuition program” is the legal name.
4.Q. Can anyone set up a 529 plan?
A. Yes. You’ll be able to set one up and name anyone as a beneficiary — a relative, a friend, even yourself. There aren’t any financial restrictions on either you, as the beneficiary, or the contributor. There is also no limit to the number of plans you set up.
5.Q. Are there contribution limits?
A. Yes. Contributions can’t exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan set up, however, keep in mind that there may be gift tax consequences if your contributions, and any other gifts, to a selected beneficiary exceed $14,000 throughout the year. For info on a special rule that applies to contributions to 529 plans, see the directions for Form 709, US Gift (and Generation-Skipping Transfer) Tax Return.
6.Q. Are there different types of 529 plans?
A. There are two basic types: prepaid tuition plans and savings plans, and every state has its own plan. And each plan is somewhat unique. States are permitted to offer both varieties. A qualified education institution can only offer a prepaid tuition type 529 plan.
7.Q. Who controls the funds in a 529 plan?
A. Whoever purchases the 529 plan is the custodian and controls the funds till they are withdrawn.
8.Q. Each 529 plan account has one designated beneficiary?
A chosen beneficiary is usually the student or future student for whom the setup is intended to provide benefits. The beneficiary is usually not limited to attending schools in the state that sponsors their 529 plan. But please, check with a plan before setting up an account.
9.Q. Can I change the beneficiary of a 529 plan I have set up?
A. Yes. There aren’t tax consequences if you change the selected beneficiary to another member of the family. Any funds distributed from a 529 plan are not taxable if rolled over to another plan for the benefit of the same beneficiary or for the benefit of a member of the beneficiary’s family. For example, you can roll funds from the 529 for one of your children into a sibling’s plan without penalty.
10.Q. What is an eligible educational institution?
Any college, university, or other postsecondary educational institution are eligible educational institution and generally eligible to participate in a student aid program administered by the U.S. Department of Education.