Account Description
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Tax-deferred account with earnings distributed free from federal income tax if used for qualified education expenses prior to age 30; contribution limits apply
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A flexible tax-advantaged way to invest for education. 529 plans allow you to:
- Invest for a loved one’s education or even for yourself
- Make sizable contributions each year
- Shift portions of an estate to future generations
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A simple way to transfer property to a minor; called a Uniform Transfer to Minors (UTMA)
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Income Eligibility Restrictions
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- Single filer with modified adjusted gross income (MAGI) less than $95,000 (annual contribution reduced if MAGI is between $95,000 and $110,000)
- Joint filers with MAGI less than $190,000 (annual contribution is reduced if MAGI is between $190,000 and $220,000)
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None
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None
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Beneficiary age limits
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- The account must be emptied within 30 days after the beneficiary reaches age 30, or death if they die before age 30.
- No age limit for a special needs beneficiary.
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No age limit
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Up to age of termination applicable in your state (generally age 18-21)
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Maximum yearly contribution per student
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- $2,000 a year per student until age 18.
- Contributions may be made until the beneficiary, reaches age 18.
- Special needs beneficiaries are allowed contributions beyond 18.
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To avoid exceeding annual federal gift tax exclusion for 2022:
- $17,000 per year per student per contributor ($34,000 per married couple who file jointly)
- OR as much as $85,000 ($170,000 per married couple who file jointly) in the first year of a 5-year period
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No limit for 2024, up to $18,000 per donor can be applied toward the annual gift-tax exclusion; additional gifts are subject to gift tax rules
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Qualified withdrawals
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- Qualified education expenses including tuition, fees, books, equipment, and supplies at an eligible elementary, secondary, and post-secondary school, as well as room and board, and computer equipment for elementary, secondary, and post-secondary school (restrictions apply)
- Academic tutoring, uniforms, transportation, and supplementary items and services (including extended day programs may also be qualified if incurred or required by an eligible elementary or secondary school
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- Qualified higher education expenses include tuition, fees, books, computer equipment and technology, and supplies required for enrollment or attendance at the eligible post-secondary institution. Room and board are qualified expenses for students who are at least half time.
- Qualified expenses also include expenses for registered apprenticeship programs and up to $10,000 lifetime for qualified student loan repayment.
- Up to $10,000 annually per beneficiary for tuition at elementary or secondary schools.
- State laws may vary; consult your tax advisor.
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Must be used for benefit of the minor. Subject to state law.
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Penalties for non-qualified withdrawals
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- Earnings subject to ordinary income tax
- 10% IRS penalty on earnings; limited exceptions may apply
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- Earnings subject to ordinary income tax
- 10% IRS penalty on earnings; limited exceptions may apply
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N/A
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Taxation of earnings and withdrawals |
- Contributions to the account have the potential to grow and be distributed tax-free if used for qualified education expenses
- Earnings are generally free from federal income tax if used for qualified expenses
- Earnings portion of distributions may be taxable in years the American Opportunity Credit or Lifetime Learning Credit is used if same expenses used to qualify for credit
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- Contributions to the account have the potential to grow tax-advantaged for future education expenses
- Withdrawals may be free from federal income tax if used for qualified expenses
- Earnings portion of distributions may be taxable in years the American Opportunity Credit or Lifetime Learning Credit is used if same expenses used to qualify for credit
- State tax deductions and/or credits vary
- Contributions may qualify for a state-income-tax deduction
- The availability of such tax or other benefits may be conditioned on meeting certain requirements
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Earnings are taxable to the minor. ”Kiddie tax” rules may apply. |