Understanding the advantages of a 529 Plan when helping your loved ones save for college while additionally securing your estate plan can set you up for success. It’s important to perform your due diligence when looking into a 529 plan by thoroughly researching how you can best utilize it, and working with tax and estate planning professionals to help you make wise choices affecting your beneficiaries and your tax savings.
Here, we will break down some of the top questions related to 529 plans to give you a running start in understanding the benefits for Georgia residents.
Who is a 529 plan intended for, and how can I apply for one?
Georgia’s Path2College 529 Plan is a state-sponsored, tax-advantaged 529 college savings plan designed to help cover the cost of education. It’s available to all Georgia taxpayers, and contributors can include parents, grandparents, other family members, and friends of beneficiaries.
Opening an account online is straightforward and easy to manage. There are a variety of low-cost investment portfolios to choose from, including enrollment year investment portfolios, static and principal plus interest options. A skilled local attorney can help Georgians in the Savannah Area assess the applicable tax benefits.
How much can I contribute without paying taxes on it?
While there are no annual limits to 529 plans, They’re treated the same as gifts under federal tax law. In 2023 up to $17,000 ($16,000 in 2022) per donor per receiver is permitted for the annual gift tax exclusion. In terms of estate planning, any gift contributions above this threshold must be reported to the IRS and are included as part of the lifetime estate and gift tax exemption amount.
An additional option is to make a larger, tax-free 529 plan endowment by evenly spreading it across a 5-year period. For example, with the existing gift tax exclusion for 2023, an $85,000 lump sum contribution to a beneficiary’s 529 plan can be applied in place of 5 individual $17,000 contributions per year. This is a popular strategy among grandparents who don’t plan to make any additional monetary gifts to the same beneficiary across the next 5 years.
What are the parameters of a 529 plan?
A 529 college savings plan can help contributors save more money over time. Any earnings grow free from federal tax, and many states offer a state income tax deduction or tax credit for contributions. Withdrawals are tax-free at the federal and state levels when used for qualified education expenses.
Beneficiaries can use the funds for much more than just school tuition. Other expenses that a 529 can be used for include:
- Required fees
- Room and board costs
- Computers and printers
- Internet access fees
- Additional school-required products
It’s also important to note that funds can be used for both in-state and out-of-state accredited schools across the United States and several colleges abroad.
In addition to college and university costs, up to $10,000 annually can be used toward:
- K-12 school tuition per student
- Expenses for fees and other required expenses in a certified apprenticeship program ( must be registered and certified with the US. Secretary of Labor under the National Apprenticeship Act)
- Qualified education loan of either a 529 plan designated beneficiary or a sibling of the designated beneficiary.
Where can I learn more?
Learn more about the Path 2College 529 plan on their official website. Please note that state tax laws are determined by the state where you file state income tax. If you’re not a Georgia taxpayer, please consult a tax advisor to understand your options.
If you are interested in moving ahead with a 529 plan as part of your tax-advantaged estate plan, contact the experts at Smith Barid today to receive individualized guidance.