10 Things You Should Know About 529 Savings Plans
They Pay for More than Just Tuition
Savings can be used for any qualified tuition expense. Additionally, for accredited higher education schools (e.g. college or vocational schools), savings can be used for additional qualified expenses including mandatory fees, supplies, books or other required equipment, and room and board, if the beneficiary is enrolled at least half-time.1
You Can Change Beneficiaries
The beneficiary can be changed to a member of the immediate or extended family (including siblings, grandchildren, nieces, nephews, cousins and more).
The Owner Controls 529 Plan Assets
The account owner—not the beneficiary—maintains control of the assets, including how and when they will be used.
Flexible Contribution Amounts
Some 529 plans allow account owners to open an account with as little as $25. Most plans allow account owners to contribute $300,000 (or more) per beneficiary over the lifetime of the account.2
Wide Range of Schools
529 savings can be used at most accredited two- and four-year colleges and universities and vocational schools, including many outside the U.S. In addition, up to $10,000 per year per beneficiary can be used for tuition for eligible public, private and religious primary and secondary educational institutions (K-12). At this time, it is not clear what, if any, expenses will be regarded as “tuition” in the case of public schools.1
No Income Restrictions
Anyone can open a plan regardless of his or her income.
Multiple Investment Options
Most 529 plans offer a wide range of investment choices allowing you to invest your assets in the portfolio(s) that best suit your education savings goals.
Convenience
Many 529 plans offer features that make it a convenient way to save for college, including monthly automatic investment plans and portfolios that automatically rebalance as the beneficiary gets closer to college.
Earnings Grow Tax Free
Earnings grow federal income tax-free, and earnings are free from federal income tax when withdrawn for qualified higher education expenses or used up to $10,000 per year for tuition for eligible primary and secondary schools.1
Estate Planning
Five years worth of gifts (up to $75,000 for an individual or $150,000 if a married couple) can be made at once to a 529 plan without owing federal gift tax, as long as no other gifts are made to the same beneficiary over the five years.
Learn more about Estate Planning
Don’t you feel better about 529 plans? Are you ready to open an NJBEST account?
Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. Gift examples are general; individual financial circumstances and state laws vary—consult a tax advisor before investing. If the contributor dies within the five-year period, a prorated portion of contributions may be included in their taxable estate. See the Investor Handbook for more complete information.
- Federal tax law now provides that up to $10,000 per year may be withdrawn from a 529 savings plan federal income-tax free, if used for tuition expenses at private, public or religious primary and secondary (K-12) schools. It is not currently clear what public K-12 school costs, if any, will be regarded as tuition for this purpose. State tax benefits and treatment of withdrawals for K-12 tuition may vary by state, may not have been updated for changes in federal tax law and may be uncertain; consult a tax professional concerning your state.
- savingforcollege.com, February 2015.
Investors should carefully consider plan investment goals, risks, charges and expenses before investing. To obtain the Investor Handbook, which contains this and other information, call Franklin Templeton Distributors, Inc., the manager and underwriter for the plan, at (877) 4NJ-BEST. You should read the Investor Handbook carefully before investing and consider whether your or the account beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in its qualified tuition program.
This material is not a recommendation of any particular security, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified attorney, tax advisor, investment professional or insurance agent. Before making any financial commitment regarding a Section 529 college savings plan, consult with the appropriate financial advisor.
NJBEST New Jersey’s 529 College Savings Plan is offered and administered by the New Jersey Higher Education Student Assistance Authority (HESAA); managed and distributed by Franklin Templeton Distributors, Inc., an affiliate of Franklin Resources, Inc., which operates as Franklin Templeton Investments. No federal or state guarantee. Principal value may be lost, and investing in the plan does not guarantee admission to any particular primary or secondary school or to college or sufficient funds for primary or secondary school or for college. Please refer to the Investor Handbook for more complete information.
See the Investor Handbook for more information on NJBEST 529 College Savings Plan, including sales charges, expenses, general risks of the Plan, general investment risks and specific risks of investing in Plan portfolios, which can include risks of convertible securities; country, sector, region or industry focus; credit; derivative securities; foreign securities, including currency exchange rates, political and economic developments, trading practices, availability of information, limited markets and heightened risk in emerging markets; growth or value style investing; income; interest rate; lower-rated and unrated securities; mortgages, asset-backed and credit-linked securities; life settlement investments; restructuring and distressed companies; securities lending; smaller and midsize companies; and stocks.
