Bucks Writs - Spring 2018 - 20

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Not Your Average 529 Plan
[ Education Planning, Part 1 ]
By Marianna Goldenberg, CDFA

o, let's start with a refresher. What is a 529 college
savings plan (spoiler alert: no longer just college)?

including the possible loss of funds. There is no guarantee
that a college-funding goal will be met. In order to be
federally tax-free, earnings must be used to pay for
qualified higher education expenses. The earnings portion
of a nonqualified withdrawal will be subject to ordinary
income tax at the recipient's marginal rate and subject to
a 10-percent penalty. By investing in a plan outside your
state of residence, you may lose any state tax benefits.
529 plans are subject to enrollment, maintenance, and
administration/management fees and expenses.

A 529 plan is a tax-deferred account with contributions
invested in a selection of mutual funds or exchangetraded funds. Later, those assets can be withdrawn tax
free if used for qualified expenses. These contributions are
not deductible on your federal tax return, but many states
offer a state tax deduction for contributions made to 529
plans. And yes, Pennsylvania is one of those states!

How Much to Contribute

Defining a Qualified Expense

* The IRS allows for an annual gift tax exclusion
of up to $15,000 per recipient for individuals
($30,000 for married couples) annually without
gift-tax consequences.
* Under a special election, accelerated gifting is allowed
with a one-time gift to a 529 plan of up to $75,000
per recipient for individuals ($150,000 for married
couples), to be contributed and prorated over five
years - without incurring federal gift tax or using the
donor's lifetime gift tax exclusion.

It's important to know, "What is considered a qualified
expense?" Withdrawals from 529 plans to fund qualified
expenses are tax free. With the 2018 Tax Cuts and Jobs
Act, the answer to this question has changed. Let's
take a closer look.
Traditionally, qualified expenses were those
incurred at an eligible postsecondary school. These
included the following:
* Tuition, fees, books, supplies, and equipment
* Room and board that is included in the
cost of attendance

The fees, expenses, and features of 529 plans can vary
from state to state. 529 plans involve investment risk,
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Table of Contents for the Digital Edition of Bucks Writs - Spring 2018