More than a decade ago, Congress authorized a college savings alternative to help parents plan for the rising costs of college. Dubbed “529 college savings plans,” these 529 plans are professionally-managed, tax-advantaged portfolios that are offered by individual states. The majority of 529 plans have no residency requirement, which means you can “shop around” to find the plan that best suits your investment style.
Not only can 529 college savings plans help you invest in your child’s future and fund his or her education, they also offer a variety of benefits for you:
As with any gifting program, you can gift as much as $14,000 annually to a child’s or grandchild’s 529 college savings plan without incurring gift taxes ($28,000 for a married couple), which removes those assets from your taxable estate.
However, a special tax provision actually lets you gift a higher amount to 529 college savings plans at one time. Currently you can gift a lump sum of $70,000 ($140,000 for joint filers) to a beneficiary’s 529 plan free from gift tax, which counts toward five years’ worth of annual exclusion gifts. This lump sum gift lets the child take advantage of the potential growth of 529 plan investments.
Note: If you gift a lump sum of five years’ worth of gifts, you can’t make any other gifts to the beneficiary for a five-year period without incurring gift taxes. And if you die within five years of the date of the gift, a portion of the gift may be subject to estate taxes. Wells Fargo Advisors is not a tax or legal advisor. Consult your tax advisor for more details about using gifting to 529 college savings plans as part of your estate planning strategy.
Before investing, you should consider whether your or your designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in that state’s 529 college savings plan.
Wells Fargo Advisors offers a wide selection of 529 college savings plans. Your Financial Advisor can help you evaluate different 529 plans before you establish one for a child’s college fund and then review the account’s performance and suggest adjustments over time.