Top Five 529 Myths Video 2015

By Aaron Skloff, AIF, CFA, MBA

Top Five 529 Myths 2015

529 Myth 1: Money Contributed to a 529 Must be Used for my Children’s College Education

The money can be used for any purpose for anyone.

If it is not used by the beneficiary for higher education expenses, only the gains will be assessed a 10% penalty and taxed as income.

The penalty and taxes may be a worthwhile if you can defer taxes over many years, for example 20 or 150 years.

529 Myth 2: Contributions are Still Limited to $13,000 Per Year

The annual contribution limit for 2015 is $14,000.

This limit is per contributor, per beneficiary.

A married couple could contribute $28,000 each year to each of their children’s 529 plans.

If the couple utilizes the accelerated gift method, they could contribute $140,000 every five years to each of their children’s’ 529 plans.

529 Myth 3: Beneficiaries Cannot be Changed

You can change the beneficiary at any time.

To avoid federal income tax and a 10% federal tax penalty on earnings, the new beneficiary must be a member of the family of the previous beneficiary (i.e.: sibling, spouse, parent, etc.)

529 Myth 4: Investments Cannot be Changed

Changes can be made twice every year.

An often overlooked solution to this limit is the ability to change the investments when the beneficiary is changed.

For example, if you make a change in February and want to make another change in April you could simply change the beneficiary on the account and the investment change limit is reset.

529 Myth 5: There are No Estate Planning Benefits

529s are one of the most powerful, lowest cost estate planning vehicles.

Contributions made to a 529 are removed from your estate.

Unlike most solutions that remove assets from estates and leave little control over investments and beneficiaries, the 529 allows owners to change investments and beneficiaries every year.

Because 529 owners can name a successor to the account when they pass away, a 529 can be used for multiple generations.


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