These qualified tuition programs, offered as prepaid tuition plans or college savings plans, are valuable tools to help finance your child's education. Prepaid tuition programs allow you to lock in today's tuition rates at participating private and public colleges and universities. College savings plans, on the other hand, offer a variety of investment options, and funds can be used to pay for tuition and other qualified higher education expenses at most colleges and universities nationwide. In 2019, up to $10,000 per year can be used for K-12 education expenses. Tax payers can also rollover amounts from 529 plans into ABLE accounts.
While state tax benefits for 529 plans vary by state, all 529 plans offer Federal tax benefits: earnings grow tax free, and funds withdrawn to pay for qualified educational expenses, including the cost of computer equipment and Internet access, are also tax free.
Contributions to a 529 plan on behalf of a beneficiary are considered a gift for gift tax purposes, and in 2019, up to $15,000 may be given tax free ($30,000 for joint filers). Furthermore, a special gift tax rule allows individuals to make a tax-free, lump-sum contribution to a 529 plan of up to $75,000 ($150,000 for joint filers) in 2019, which represents 5 years of giving; however, you will be unable to make tax-free gifts on behalf of the same beneficiary for the next five years.
For more information on your state's program, visit www.collegesavings.org.
The Achieving a Better Life Experience (ABLE) Act creates tax-favored savings accounts for individuals with disabilities for tax years beginning after December 31, 2014. The ABLE Act authorizes states to create an ABLE Program (similar to Code Sec. 529 college savings programs). Specific to the discussion on 529 plans, the ABLE Act authorizes investment direction for 529 plans by an account contributor or designated beneficiary up to two times each year. The change is effective for tax years after December 31, 2014. The Protecting Americans from Tax Hikes Act of 2015 (PATH) eliminates the in-state-plan requirement for the coming new 529-ABLE plans for disabled beneficiaries.