College & Education

What Are The Advantages Of A 529 College Savings Plan?

Tax-deferral can have a dramatic effect on the growth of an investment. In a state-sponsored 529 College Savings Plan, contributions grow tax-deferred (some states also allow contributions to be partially or completely deductible) and distributed income tax-free as long as distributions are used for qualified education expenses such as tuition, fees, room and board at higher education institutions. There is no limit on contributions but some states tend to limit contributions once the plan assets have reached a defined maximum (typically $200,000 - $250,000). Subject to aggregations with other gifts (including to other education accounts), you may make contributions up to the annual gift tax exclusion ($12,000 in 2007) per beneficiary in a single year without triggering a federal gift tax. Married couples may contribute $24,000 per beneficiary in a single year (as of 2007). You can also avoid gift tax on a larger gift by using up in the year of the gift your future cumulative gift tax exclusions for the five-year period beginning in the year of the gift. Assets are professionally managed by fund managers selected by the state. Participants can choose from two to almost 30 mutual fund-type investments. Control of the account (subject to limitations on changing options) remains with the contributor regardless of the age of the beneficiary. [Note: To the extent allowed in a particular plan, the contributor can change beneficiaries or roll over amounts to a plan for a member of the beneficiary's family, and such actions will not be subject to income tax.]

Savings and Assumptions	Input
Initial investment amount	$
Annual savings amount:	$
Number of years contributions are made:	(0-30)
Before tax return on savings: (%)	(0-12)%
Marginal tax bracket: (%)	(0-50)%

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Savings Information And Assumptions
Initial investment amount
Annual savings amount:
Number of years contributions are made:
Before tax return on savings: (%)
Marginal tax bracket: (%)

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