Under the 529 plan college savings program—named for the authorizing section of the Internal Revenue Code—you can set up accounts for different beneficiaries outside your estate. In addition, 529 plan accounts have the following advantages over annual gifting:
- Investment earnings and distributions for college expenses are free of federal tax.
- You can change the named beneficiaries.
- You control the disbursements from the accounts.
- You can accelerate five years of gifting by making one lump-sum gift of up to $70,000 ($140,000 for married couples filing taxes jointly) and do so free of gift tax by filing IRS Form 709.*
Tax-free withdrawals may be used only for qualified higher education expenses (ordinary income taxes and a 10% federally mandated penalty apply on any earnings withdrawn for nonqualified expenses). However, there are no institution or state limits: 529 plan assets can be used at any accredited higher education program in any state and even at some foreign institutions. In addition, there are no income limits restricting access to 529 plans.
Because each investor has a different approach to investing, our 529 plan offering—CollegeBoundfund—provides a suite of investment options, some of which you can customize using combinations of our mutual funds. Specially designed for our program, this menu of options allows you to select the portfolio that best suits both your beneficiary’s situation and your preferred investment approach.
The tax rules are complicated, and their impact on a particular individual may differ depending on the individual’s specific circumstances. Please consult with your legal or tax advisor regarding your specific situation.
*Under an “add-back” rule, if a contributor to a 529 plan elects to treat the gift as having been made over a five-year period and dies during the five-year period, prorated amounts allocable to the years after death are included in the contributor's gross estate for federal estate tax valuation purposes.