529s were created as a complement to prepaid tuition plans established by many states. Unlike prepaid tuition plans, there are no residency requirements. 529 savings plan monies can be used to pay for higher education costs at any accredited college, university or technical school in any state.
This might be a college, graduate school, professional school, or a post-secondary vocational or trade school. The school may be either private or public; in-state or out-of-state.
This chart makes it easy to compare different savings vehicles side-by-side:
| Contribution Limit |
$2,000 per student per year. Contributor must earn less than $110,000 (single filers) and $220,000 (joint filers) |
None |
Depends on state |
| Age Limits |
May contribute until child reaches age 18. Must spend assets by child's 30th birthday. |
May contribute until child reaches maturity at which time child assumes control of assets |
None—However, some state plans do have their own age and/or time limit |
| Tax Treatment of Withdrawals |
Tax-free if used for qualified expenses |
None (Subject to annual tax) |
Tax-free if used for qualified expenses |
| Account Control |
Account owner |
Child assumes control once he or she reaches age of maturity |
Account owner |
| Beneficiary Flexibility |
Flexible |
May not be changed |
Flexible. May be for the benefit of anyone, including yourself. |
| Effect on Financial Aid |
Considered to be assets of the account owner so only a small portion is considered in the aid calculation |
Considered to be the assets of the student and reduces financial aid |
Considered to be assets of the account owner, so — unless the owner is also the beneficiary —only a small portion is considered in the aid calculation. |
| Gift Tax Treatment |
May contribute $2,000 per year per child without gift tax |
May contribute $13,000 per year per child without gift tax |
May contribute $13,000 per year per child without gift tax |
| Estate Tax Treatment* |
Considered removed from donor's estate |
Considered removed from donor's estate
|
Considered removed from donor's estate |
*Assets placed into a 529 College Savings Plan are considered removed from the donor’s estate for tax purposes. An exception to this rule is if the Account Owner passes away and is listed as the Designated Beneficiary on the account. In this instance, the value of the account will be included in the account owner's taxable estate. You should consult a qualified tax advisor for any tax related issues.
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