Section 529 plans allow individuals to invest in a predetermined pool of stock and bond investments. Most plans will require you to divide your investment according to a given asset allocation determined by your child’s age. In general, the asset allocation will be more aggressive for younger children and less aggressive for children nearing college age.

Lifetime contribution limits to Section 529 plans vary from state to state, and you may have some flexibility on when you can contribute. In addition, there are no income thresholds and typically no annual contribution limits, although annual contributions of more than $12,000 may require filing a federal gift tax form and are subject to federal gift taxes. Contributions up to $12,000 annually ($24,000 when made jointly with a spouse) or a lump-sum contribution of $60,000 every five years will not incur gift taxes, up to the plan's respective lifetime contribution limit. Any earnings in the account potentially grow tax deferred. If you live in the state where the plan is administered, you may also be eligible for state tax deductions.

Once your child reaches college age, he or she may withdraw money from the account to pay for qualified higher education expenses. Assuming that you have followed the plan’s rules, there will be no penalties, and withdrawals used for qualified education expenses are tax free. Any money left over in the account can be transferred to a sibling, first cousin or other family member (as defined by the Internal Revenue Code) of the original beneficiary without triggering gift taxes, as long as the new beneficiary is the same generational level as the original beneficiary.

If your beneficiary decides not to go to college, you may leave the money in the account for use either by your beneficiary, who may eventually decide to pursue a higher education, or by your beneficiary's child. You may also change the beneficiary to a family member of the original beneficiary.

The professionals at Warren Steinborn Associates are committed to assisting you in reaching your education savings goals. We can provide additional details and materials for your reference. Although not tax advisors, Warren Steinborn Associates will be happy to work with you and your tax advisor in reaching your tax and financial goals.

Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Advisor. Warren Steinborn Associates and NPC are separate and unrelated companies.
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