Are there any tax advantages to a 529 Plan?
Yes. There are state and federal benefits. Types of tax benefits include 1) Income; 2) Gift; 3) Generations-skipping transfer; and 4) Estate. Earnings on contributions grow federally tax-deferred for all plans. Beginning in 2002, withdrawals to pay for “qualified expenses” became federally tax-free and are not subject to federal income tax*. All states defer earnings on 529 accounts from state income taxes and many state treat distributions paying for qualified expenses as tax-free for their home state sponsored plan as well as out-of-state plans. Some states offer favorable tax treatment (such as a state income tax deduction or state tax credit) or other benefits to their residents only if the resident invests in their own state’s plan. Contributions as much as $60,000 per beneficiary can be made in the first year of a five-year period without exceeding the annual federal gift tax exclusion. Contributions to a 529 plan are regarded as a completed gift and the value in the account is n
