Give the Gift of Education through a 529 Plan

tax benefits of a 529 plan

2 min read

Are you looking to cut through the noise and give a more meaningful gift this holiday season? Consider giving the gift of education to your children or grandchildren through a 529 college savings plan.

Higher education costs are steadily rising, so investing in future education expenses can be a creative, unique gift that the special child will one day thank you for. There are many advantages of investing in a 529 plan, a few of which we will cover here.

Invest in a 529 Plan — Your Tax Bill Will Thank You

Earnings in a 529 plan will grow tax-free over time, and if the funds are used for qualified expenses, such as tuition, fees, room and board, books, etc., they will not be taxed when distributed. On top of that, some states also offer a state income tax deduction or credit for your contributions. Rules vary from state to state (e.g., there are none in TX since we have no state income tax), so be sure to research and understand your state's specifics before investing.

For tax planning purposes, a 529 plan contribution is considered a gift to the beneficiary and qualifies for the annual gift tax exclusion. This means you can make large donations without being subject to the federal gift tax of up to $15,000 (or $30,000 for married couples).

If you want to make an even larger tax-free gift for a special child, you can frontload your contribution to as high as $75,000 in one year (or $150,000 for married couples). This is the five-year gift tax averaging, where the gifts are treated as if they are spread evenly over a five-year period. This option does require a gift tax return, so please let your MGA team know if you decide to go this route.

A Few Other Benefits of Investing in a 529 Plan

It’s also important to note the flexibility of 529 plans. Unlike other investment vehicles that require the assets to be given to the beneficiary when they reach a certain age, a 529 plan remains under the control of the account owner. For example, if the child does not wish to go to college, you can choose a different beneficiary or even use the funds for your own continued education. There are also no age restrictions with 529 plans.

A Thoughtful Gift That Will Benefit All

If you are having trouble finding that “perfect” gift for a special child in your life and running out of time, talk to your trusted tax and investment advisors today about how you can give the gift of learning a thoughtful gift that will benefit everyone involved.

Have more questions about the tax benefits of a 529 plan or if investing in one might be a good tool for you? Let’s talk!

We are here to make the complex simple.

December 9, 2021