Due to tax law changes, Section 529 plans are increasing in popularity. This includes both prepaid tuition programs and college savings plans. Most states now offer college savings plans, and even private colleges and universities can implement their own prepaid programs, eligible for the same federal income tax advantages as state-operated plans.
Here are six benefits of Section 529 plans:
- Distributions used to pay qualified higher-education expenses are excluded from income tax.
- You are the owner of the account and can change the beneficiary or even take the money back, if permitted by the plan.
- You or other family members can contribute up to five years-worth of gifts in a single year and still be covered by the annual gift tax exclusion.
- There are no income limitations for contributions.
- The assets in the plan are considered the account owner's assets, not the beneficiary's assets.
- You can now make tax-free transfers of funds from one plan to another or from one investment option to another for the same beneficiary once every 12 months.
Learn more about Section 529 plans, including the aforementioned benefits and tips to consider before contributing to a plan, in the Weaver newsletter article Saving for Your Child’s Education with a Section 529 Plan.