529 College Savings Accounts (“529 Plans”)
529 plans are education savings programs designed to meet the requirements of a qualified state tuition program under Section 529 of the Internal Revenue Code. 529 plans can be used to pay for a beneficiary's qualified higher education expenses such as tuition, books, and room and board at most accredited colleges or universities, or professional or technical schools in the nation.
529 plans offer investors the following benefits*:
- Tax advantaged growth-While your contributions to the plan are not tax-deductible, your investment grows tax-deferred, and qualified distributions associated with the beneficiary's college costs come out free of federal taxes.
- Estate planning benefits-When gifting, the contributions (up to certain limits**) and any future earnings are removed from your gross taxable estate, reducing any potential estate taxes. You can accelerate the use of five years' annual gift tax exclusions, removing the assets and growth/earnings from your taxable estate. If you should die during that five-year period, a pro rata portion of your contribution (but not the growth) is brought back into your taxable estate.
- Control and Liquidity of Account-Plan owners, not beneficiaries, maintain control over how and when plan assets will be spent for higher education expenses.
- High contribution limits-The amount you can contribute varies from plan to plan, but is generally over $250,000 per beneficiary.***
- No income limits on account ownership-Generally, 529 plans do not set income limits that would restrict the ability of higher-income taxpayers to contribute.
- Change beneficiaries among qualified family members at any time-If a designated beneficiary no longer wants or needs the balance in his/her 529 plan, the account balance can be transferred to another family member eligible under the particular 529 plan. This would occur as a rollover, transfer, or by changing the name and tax identification number on the account to that of the new designated beneficiary.
* Benefits vary from plan to plan; please see the applicable plan documents for information specific to that plan.
** The Internal Revenue Code excludes from gift taxes contributions of up to $14,000 (2015 amounts, subject to inflation) per beneficiary per year (or $28,000 for a married couples filing jointly), and permits lump sum contributions of up to $70,000 ($140,000 for married couples filing jointly) once every five years per beneficiary by allowing individuals to accelerate the use of 5 years' annual gift exclusions.
*** Source: http://www.finra.org/Investors/SmartInvesting/SmartSavingforCollege/P123940
Note: 529 plans are not available through Prudential financial professionals in all states. Please speak with your Prudential financial professional for more details.
Neither Pruco Securities, LLC nor its financial professionals render tax or legal advice. Please consult with your attorney, accountant, and/or tax professional for advice concerning your particular situation.
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