As an alternative, grandparents can contribute to a 529 account owned by a parent. In most of these states, residents may claim the income tax benefit only when they use an in-state 529 plan. Thank you! Does Each Need a Separate 529 Plan? Visit individual plan websites for current information about fund expenses, minimum contributions and other information. (Separate multiple email addresses with commas), (Separate multiple e-mail addresses with commas). UTMA/UGMA 529 Plan: Definition, Pros & Cons vs. ", 116th Congress, 1st Session. Ugift is an easy, free-to-use service that lets 529 plan account owners encourage family and friends to celebrate children's milestones with the gift of college savings, in lieu of traditional gifts. That means you can only contribute up to a certain maximum amount per beneficiary. See a Fact Kit for more details on changing beneficiaries. For example, a grandparent can give an $85,000 one-time lump-sum contribution to a 529 plan ($17,000 per year multiplied by five years) with the understanding that it would cover five years worth of gifts. Finally, the rules below assume that the parents are making the contributions. For estate planning purposes, the advantage of paying directly is that the payment is not considered a gift. Scroll to Education > select Virginia College Savings Prepaid Tuition (Section 529 Plan) > Start or Revisit/Update. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. You can use the contributions and earnings tax-free for qualified educational expenses. Heres what you should know once youve decided to save for college using a 529 plan. Tax Benefits of Wisconsin's 529 College Savings Program - The Balance Answer: B (in most cases). In order for an accelerated transfer to a 529 plan (for a given beneficiary) of $85,000 (or $170,000 combined for spouses who gift split) to result in no federal transfer tax and no use of any portion of the applicable federal transfer tax exemption and/or credit amounts, no further annual exclusion gifts and/or generation-skipping transfers to the same beneficiary may be made over the 5-year period, and the transfer must be reported as a series of 5 equal annual transfers on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Federal financial aid calculations count such distributions only from the prior-prior yearthat is, two tax years before the funds were distributed. Married taxpayers may deduct up to a maximum of $4,000 per beneficiary whether their filing status is married filing jointly or married filing separately. Information obtained via CollegeFinance.com is for educational purposes only. Most 529 plans include an administrative or annual fee, which tends to be around 0.14% to 0.53%. The 529 education savings plan offers an appealing combination of tax advantages, control, flexibility, and minimal impact on student aid. A 529 plan can be a great alternative to a private student loan. Line 17 is for the Michigan Education Savings Program and MI 529 Advisor Plan, and Line 18 is for the Michigan Education Trust. Can I Roll a Traditional IRA Into a 529 Plan for My Grandchild? More than 30 states offer a state income tax deduction to grandparents who contribute to a 529 account. Plan distributions used to pay for non-QHEE items are subject to state and federal income taxes and an additional 10% federal penalty on earnings, with exceptions for certain circumstances, such as death and disability.