Do 529 Plans have Tax benefits?

When you are creating an estate plan, it is important to obtain tax benefits where possible. For general information regarding 529 Plans, please read our blog titled “Saving for College Through a 529 Plan.” This blog will discuss the tax benefits of 529 Plans, such as:

  • Federal tax benefits. Even though your contributions to a 529 Plan are not deductible from your federal taxes, your investment in the education savings account will grow tax-deferred. Additionally, when the beneficiary withdraws money to pay for college, the distribution is federally tax-free.
  • State tax benefits. If you created a 529 Plan in Utah and you reside there, the income is also exempt from state income tax.
  • Control over account. If you are making donations into the account, you retain control over it. For example, a parent that opens the account for the benefit of his or her child. With a few exceptions, the beneficiary has no rights to the funds. The donor/owner of the 529 Plan can decide when distributions should be made and for what purpose.
  • Tax reporting. Until withdrawals are taken from the account, you will not receive a Form 1099 to report taxable or nontaxable earnings.
  • Deposits. Most state 529 plans do not have income limitations or age restrictions. In fact, you can contribute substantial sums if you desire. Many state plans allow more than $300,000 per beneficiary.
  • Simplicity. Establishing a 529 Plan is a simple way to save for college. You can typically arrange for automatic deposits out of your bank account and the investments of your account are handled by the plan. In other words, you have the peace of mind knowing that you’re saving for college without any high maintenance demands.

It should be noted that some people prefer to use an irrevocable trust for education because of the flexibility a trust provides and the ability to control the funds while serving as the trustee. If you are trying to decide whether a 529 or an irrevocable trust would be more beneficial for you and your loved ones, call us today.

The Astill Law Office has provided high quality legal services for over 30 years. We specialize in wills, trusts, estate planning, and asset protection. If you have any questions about creating a Trust, Will, or estate planning in general, contact The Astill Law Office at 801-438-8698.