College Savings

529 college savings plans are designed to help individuals and families save for college while offering tax benefits. They are advised to support families in the process of saving for college to help make the dreams of  higher education for their children come true. Assets can be used at any eligible college, university, or institution of higher education including vocational schools. Funds can be used to also supply books, computers and other related equipment, lab fees or even room and board (subject to certain limits, student must be enrolled on at least a half-time basis).


Anyone with a valid social security or tax identification number can contribute to a 529 college savings plan, regardless of income, and the beneficiary must have a valid social security number and is not limited by age or state. One of the big differences about a 529 college savings plan is that the donor retains control of the funds even after the beneficiary reaches the age of maturity, preventing the funds from being used for anything but higher education.


Earnings and withdrawals may be eligible to be free from federal and possible state income taxes. While contributions are not federally tax deductible, amounts invested in the account grow tax free. Contributions up to $14,000 ($28,000 for married couples) per student, are allowed in a single year without federal gift tax, this number may also vary depending on the state. Large sums can also be contributed, up to five-year forward averaging of the gift tax exclusion according to federal tax law.


Built with a back-up plan, if a child decides not to attend college or earns a scholarship, the money can be redirected to another family member simply by changing the beneficiary. If they decide to withdraw early there is a 10% early withdrawal penalty on any distributions that are taken out for any reason other than qualified educational expenses, and qualifying ordinary income tax will also be charged to the recipient.