529 Savings Plans

1. General Description of Tax- Deferred Vehicle.

A tax deferred investment is one in which some or all taxes are paid at a future date, as opposed to the year the investment produces income. Tax-deferred vehicles typically refer to accounts that allow deferral of taxes on contributions, growth, or both; taxes are not paid until withdrawal of funds. The growth of funds in a 529 plan and withdrawals made for the purpose of education are tax-free at the federal level. The taxation at the state level varies state to state.

2. What person can utilize this vehicle of plan?

There are two types of 529 plans: prepaid tuition plans and college savings plans. Prepaid tuition plans allow parents to prepay future tuition and fees at today’s cost. College savings plans allow parents to begin saving for higher education expenses for

Qualified withdrawals include payment of tuition fees, room and board, books, supplies, equipment required for enrollment (Doesn‘t the beneficiary also have to be under age 30 for the distribution to be classified as a qualified one?). Federal law imposes a 10% penalty on earnings for non-qualified distributions beginning 2002. This means you will get back 100% of your principal and 90% of your earnings. In addition, non-qualified withdrawals are subject to federal income tax. The penalty is not assessed if you terminate the account because the beneficiary has died, is disabled, or if you withdraw excess funds created by a scholarship award. (Source)

5. What are the limits of contributions for employers out to 2010?

 The funds may be used at any accredited college or university in the country.

4. What are the limits of contribution for individuals out to 2010?

* $235,000.00 maximum lifetime contribution limit per beneficiary.

* Minimum contribution of $50.00 per year.

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