If you are thinking of opening a 529 college savings account for yourself or your child, a review of the tax rules should be on your to-do list. Here's a summary.

  • Qualified tuition programs — the official name for 529 college savings plans — are established by individual states with the goal of providing a tax-advantaged way to save for college expenses. You can set up a plan in any state, no matter where you live or what your income is, and you can open more than one plan. As owner, you control the funds.
  • Contributions are not deductible on your federal income tax return. You can make them at any time during the year. Depending on how much you contribute, you might need to file a gift tax return.

    Your state may have different rules.
  • Earnings on the assets in your plan are tax-deferred and can be tax-free. That means you pay no tax on income accumulated within the account until you start taking withdrawals – and you may not have to pay tax even then, assuming you use withdrawals for tuition, fees, books, and other qualified education expenses.
  • Withdrawals are reported to the IRS by the plan at year-end on Form 1099-Q, "Payments From Qualified Education Programs," which you'll need in order to complete your federal income tax return.

Give us a call to discuss additional tax benefits and rules for 529 college savings plans, including estate planning opportunities.


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