The tax advantages of a 529 plan
No federal income taxes to pay
You pay no federal income taxes on earnings while the 529 account is invested, and pay no federal income taxes when the money is withdrawn to pay for qualified education expenses. In addition, 34 states currently offer tax incentives as well.
529 plans also offer a unique benefit of decreasing your taxable estate. In certain cases, contributions to the account can be removed from your estate for tax purposes, yet you retain control over the assets. 529 plans also offer a special gift tax exclusion.
Bypass federal gift taxA special gift tax exclusion of 529 plans enables you to make five years’ worth of gifts to a single beneficiary in a single year without triggering the federal gift tax.
- Maximum for individuals is $75,000 for 2018
- Maximum for married couples is $150,000 for 2018
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