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Posted on 2/12/14 at 3:40 am to Douboy
quote:
Why? I would never buy one of these. Please explain.
529 plans are designed to offer tax benefits and flexibility to families saving for college.
Significant tax advantages
Tax-deferred earnings: The money that you invest in a 529 plan account grows tax-deferred, which means that your money can work harder than in a taxable account (see the chart below).
Tax-free qualified withdrawals: You don't pay federal or state taxes on withdrawn money when it's used for a qualified, college-related expense.2
State tax advantages: In addition, many states offer income tax incentives on contributions to their state-sponsored 529 plans. Often, this takes the form of a deduction from your state taxable income or as a credit on your state income tax.3 (Some states recapture deductions and/or credits in certain circumstances such as non-qualified withdrawals; please read the applicable plan's offering document for more specific information.)
Gift tax benefits: You can contribute $14,000 (single)/$28,000 (married, filing jointly) in a single year without incurring a gift tax. You can also benefit from accelerated gifting where you can make up to five years' worth of gifts ($70,000 if single/$140,000 if married, filing jointly) to a 529 plan account beneficiary in one year without incurring gift taxes.
Why would you not?
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