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The Benefits of 529 Plans

| March 11, 2014
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There are a number of federal and state-sponsored tax-advantaged college savings programs available. 529 college savings plans are a popular option. Regardless or your income or tax bracket, you can take advantage of the federal and, if available, state tax incentives offered by these plans. In many states, residents or state tax payers get a full or partial state income tax deduction for investing in the state sponsored 529 plan. In others, contributions to any 529 plan are eligible for the state's income tax deduction, and residents are not required to choose the in state plan to get the benefit. In addition, investment earnings in a 529 plan compound on a tax-deferred basis, and qualified withdrawals are federal tax free provided they used for qualified education expenses. 

In addition to 529 plans, college savings alternatives include UGMA/UTMA accounts, Coverdell Education Savings Accounts, and Series EE and Series I savings bonds. However, 529 plans typically offer benefits not found in these other types of education accounts such as: 

Special estate and gift tax benefits

  • Contribute five years' worth of gifts in one year, up to $70,000 per beneficiary (or $140,000 if married and filing jointly) without incurring the federal gift tax. This may help reduce the size of your taxable estate. 

Broad choice of schools

  • Your account may be used at any eligible public or private institution in the U.S. and overseas.

Flexibility

  • Ability to change beneficiaries.
  • Leave accounts open for an unlimited amount of time.
  • Control how the account assets are invested and distributed.

Friends and family can contribute 

  • Many 529 plans make it simple for friends and family to make a gift. 

Wide range of investment choices 

  • Most 529 plans offer a large menu of investment options to suit an investors risk tolerance and time horizon.

Source: J.P.Morgan Asset Management 

Before you invest, consider whether your or the beneficiary's home state offers any state tax or other benefits that are only available for investments in that state's qualified tuition program. 



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