10 Important Questions about a College Savings Fund

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Tuition at US colleges and universities is so expensive that sometimes parents start saving for it immediately after the birth of their child. A college savings fund (also called a 529 plan) is often used for this purpose. This is a special financial plan from a bank or educational institution that helps raise money for college education for a child or grandchild. An additional incentive is that income from such a fund is not subject to federal or state taxes if it is used for the educational needs of the designated beneficiary, such as tuition, books and college expenses.

ForumDaily, on the basis of information from the United States Revenue Service, answers the main questions regarding the 529 plan.

1. How long have college savings funds been operating?

Congress created these funds in 1996. They are also called the “529 plan” in honor of the 529 article of the United States Tax Code. Legal name - “Qualified tuition payment program”.

2. Anyone can establish a savings fund under the plan 529?

Yes. You can set up your college savings fund and indicate any person as a beneficiary - relative, friend, even yourself. There are no income restrictions for either you (as a founder) or the beneficiary. There are also no restrictions on the number of funds that you can establish.

3. Are there any restrictions on the amount of contributions?

Yes. Contributions should not exceed the amount required to ensure the relevant costs of education of the beneficiary.

If you make a contribution to the 529 plan, you should know that if your contributions plus any other gifts to a specific beneficiary exceed $ 14 000 per year, they may be taxed.

More information on special rules applicable to contributions to the 529 plan can be found in the instructions for 709 form (US tax form for gifts).

4. What are the types of 529 plans?

There are 2 basic types: prepaid college and savings plans. They differ in different states. The state may provide both plans, but educational institutions have the right to offer only an 529 plan for advance tuition.

5. Can I take part in savings banks of other states?

Yes. Your state's 529 plan can offer more benefits to get you as a customer. But the market is big - you can find on it another plan that you like more. Just compare the characteristics of different plans.

6. Who controls the finances in a college savings fund?

The one who opens the 529 plan is his trustee and controls the finances until they are used.

7. Each 529 plan has only one designated beneficiary. What does it mean?

The designated beneficiary is, as a rule, a student or a prospective student, for whose education money is collected in a savings fund. As a rule, the beneficiary is not limited to choosing a college only in the state that sponsors his plan, but it needs to be clarified for each specific plan separately.

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8. Is it possible to change the beneficiary of a savings fund to attend college after it opens?

Yes. A change in the designated beneficiary within the family does not entail tax consequences. In addition, the amount transferred from one 529 plan to another for the benefit of the same beneficiary or member of his family is not taxable. That is, you can transfer money from a savings fund for the education of one child to the same fund of your other child without penalty.

9. I don't have an 529 plan for my child yet. Can I open such a fund now and take advantage of its benefits?

You can open a savings fund for college. But the advantage of the 529 plan is that the income accumulated on the plan’s contributions is not taxable. Like other savings accounts, a college fund only earns over time. If you open the fund when the child is already studying at the university, then perhaps he will not bring enough earnings. But in the process of learning, the student will still benefit from the 529 plan.

10. Is opening a savings fund for my child’s college profitable to me?

Only you decide. 529 plans are not for everyone, and they are not the only way to pay for college. The opening of such a savings fund is an investment decision on which you need to weigh all the pros and cons, as well as find alternative ways to achieve this goal. 529 has a lot of information from uninterested sources. In addition, you should also consult a tax expert or financial planner on this issue. You can read more about 529 plans in 970 Publications The United States Revenue Service (IRS) on tax incentives for education.

See also:

How to get a higher education in the US is almost free

How to get an education in the USA and how much it costs

Higher education in New York: what you need to know and useful links

Education in the USA: children of illegal immigrants are not taken to schools

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