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A 529 Plan provides a tax-deferred way to invest for college. It also offers significant estate and gift tax benefits that make this type of education savings plan truly unique.
The benefits include:
A 529 Plan is a great way to invest for future college expenses, but it also offers benefits for estate planning. If you have a large estate, you may be looking for ways to reduce its value in order to minimize or avoid estate tax for the beneficiaries of your estate.
Generally, a 529 Plan allows you to:
The combination of these factors is unique to 529 Plans. With other types of accounts, if you maintain control of the assets, the money is considered part of your estate.
In general, you can give monetary gifts to anyone without owing gift tax as long as the gifts do not exceed annual exclusion amounts. This is true of contributions you make to a 529 Plan. However, there is an additional benefit specific to 529 Plans that allows you to contribute a large amount of money free of gift tax in a single year.
If you spread your contribution over five years for gift tax purposes, a portion of the gift would return to your estate in the event of your death during the five-year period.
A 529 Plan may allow you to invest for future college expenses while you take advantage of estate planning and gift tax benefits. You should talk with your tax or legal advisor for information specific to your tax situation and investment planning.
The availability of tax or other benefits may be conditioned on meeting certain requirements. Non-qualified withdrawals are subject to federal and state income taxes and a 10% penalty.
Before investing, consider the investment objectives, risks, and charges and expenses associated with investing in 529 Plans. More information about 529 Plans is available in the issuer's official statement, and it should be read carefully before investing.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.