The 529 College Saving Plan

The Menashe Morley Group is pleased to welcome two brand new members to the team — Cecilia Shelton and her husband Jack, and John Naviaux and his wife Erin, each welcomed a beautiful newborn to their families: Linnea Marie Shelton and James Allyn Naviaux. As they celebrate their new additions, it makes sense to discuss the use and benefits of 529 College Savings Plans, especially with the ever-rising cost of a college education.

A 529 Plan allows you to invest in a tax-deferred account for higher education at any approved university, college or trade school, in or out of state. Anyone over the age of 18 can open and contribute to a 529 account for a beneficiary. And, once an account is established, anyone can help contribute, like grandparents, for example. Contributions of up to $14,000 per year (the annual federal gift tax exclusion) or $28,000 per couple can be made annually. There is a forward gifting rule that allows contributors to gift up to 5 years at one time: $70,000 per individual or $140,000 per a couple. You cannot contribute for the next 5 years but it gives you a big jumpstart.

Any earnings in a 529 account are federal and possibly state income tax-free as long as the withdrawals are used for qualified higher education expenses. Any earnings portion of withdrawals used for nonqualified expenses will be subject to federal income tax and may be subject to an additional 10% federal tax, and also may be subject to state income or other taxes.

A 529 account owner retains control of the account and may change the beneficiary to other family members of the original beneficiary at any time without any tax consequences. So, if the child does not go to an institute of higher education, the funds can be used by other family members for their education. At worst, if the funds are not used to pay for qualified higher education expenses, upon withdrawal, any earnings will be subject to ordinary income tax and may be subject to an additional 10% federal tax, and may also be subject to state tax. The additional tax does not apply if the student receives a scholarship, dies, or becomes disabled.

David Menashe is a Senior Vice President and Wealth Management Advisor, Bruce Morley is a First Vice President and Wealth Management Advisor, and John Naviaux is a Financial Advisor for Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker-dealer, Member SIPC, and a wholly owned subsidiary of Bank of America Corporation. (858.381.8113)

Linnea: Photo by Brittany Stewart, Group: Photo by Andy Templeton