SECTION 529 ACCOUNTS
If you're planning to help send a child to college, 529 Plans are a flexible and federally tax-free way to invest for college. Named after the federal Internal Revenue Code Section 529 that gave these accounts special tax status, 529 Plans were specifically created for college savings.
Under current Federal tax law, 529 plans are generally exempt from Federal income tax. There are two types of 529 plans. The first type, the "prepaid educational services account, allows for the purchase of tuition credits for colleges in a particular state. The second type, the "education savings account (ESA) , allows for contributions to an investment account set up to meet future higher education expenses.
The ESA can only be offered by a state (or a state agency or instrumentality). Under this type of plan, contributions are made to an investment account established in the name of a chosen beneficiary to meet his or her qualified higher education expenses. The account owner maintains control of the account. With few exceptions, the named beneficiary has no rights to the funds. The account owner decides when withdrawals are taken and for what purpose. The plan’s rate of return depends on the performance of the investments (typically mutual funds) made by the plan administrator. Some states offer a choice of different mutual funds while other states’ investment choices are more limited. Neither the contributor nor the beneficiary of the plan is permitted to control the investments in the plan directly or indirectly. Notwithstanding, a contributor may choose among different types of investment options available under a particular plan at the time of the contribution to the plan.
529 Plans offer many advantages including:
- Federal income tax-free qualified withdrawals
- No income restrictions
- High maximum contribution limits
- Proceeds can be used at accredited colleges and universities nationwide
- Estate and gift tax benefits
- Open to residents of any state
- Low initial minimum investment
©2001 Sima Enterprises - email:sales@simaenterprises.com