Since 1996, 529 plans, which are named for Section 529 of the Internal Revenue Code, have been one of the most popular options for covering college costs. Congress expanded these plans to cover K–12 education in 2017, and it also changed the program to pay up to $10,000 in student loan debt in 2019.
One reason 529 plans are so popular is due to their tax-saving advantages. The money you contribute to a 529 account grows on a tax-deferred basis, and withdrawals are tax-free, provided they are used for qualified education expenses, such as tuition, room and board, and other education-related fees. And many states also provide a tax deduction or credit for 529 contributions.
Another appealing feature of 529 plans is their relatively high contribution limits. There is no limit on how much you can contribute each year, although if you contribute more than $17,000 (the amount of the gift tax exemption limit in 2023), you can trigger federal gift taxes and the requirement to file a gift tax return. If you plan to make a contribution close to or above $17,000, contact us for guidance.
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