Plan Tax Benefit And Advantages
Regardless of how much you invest, these tax advantages help you maximize your college savings:
- Tax-Deferred Growth Contributions grow free of federal and state income taxes while in the account.
- Tax-Free 529 Withdrawals No income tax is paid on the growth of your account when withdrawals are used for qualified expenses.
- State Tax Deduction Deduct your contributions from your taxable income. Check with your state for specific tax benefits. For example, Kansas taxpayers receive an annual adjusted gross income deduction of up to $3,000 for contributions per child. The availability of tax or other state benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.
- Estate Planning & Accelerated Gifting Reduce your personal taxable estate through accelerated gifting . This means you can make five years’ worth of gifts up to $80,000 to your 529 account in a single year without being subject to gift taxes. This benefit is unique to 529 plans.
The difference between tax-free growth and taxable growth can be significant. Using these tax benefits means you are putting your money to work for you!
The availability of tax or other state benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.
Tax Benefits For Nebraskans
Account owners are eligible to receive a Nebraska state income tax deduction of up to $10,000 for contributions made to their own NEST accounts.2Contributions made beyond the $10,000 mark cannot be carried over to a future year.2
For minor-owned or UGMA/UTMA NEST accounts, the minor is considered the account owner for Nebraska state income tax deductions. The minor must file a Nebraska tax return for the year their contributions are made to be eligible for a tax deduction for their contributions. In the case of a UGMA/UTMA NEST account, contributions from the parent/guardian listed as the Custodian on the UGMA/UTMA NEST account are also eligible for a Nebraska state tax deduction.
Both the contribution and earnings portion of funds that were deposited into a NEST account from a non-Nebraska 529 plan are eligible for the tax deduction.
The Ease Of Online Account Maintenance
Once you open your account after consulting with your financial advisor on the investment options, you can manage your account online at your convenience, make changes to investment options, and handle other account maintenance tasks such as changing a beneficiary.
1. Additional contributions to your account will be rejected if it would cause the aggregate contribution balance of all Texas 529 program accounts for your beneficiary to exceed the Maximum Texas Program Contribution Limit, which is currently $500,000. This limit considers all 529 programs administered by Texasthe LoneStar 529 Plan, the Texas Guaranteed Tuition Plan, the Texas Tuition Promise Fund®, and the Texas College Savings Plan®regardless of the owner of the account.New contributions will not be allowed once this limit is reached, but earnings will continue to accrue. Consult your tax advisor for information on how 529 tax treatments would apply to your particular situation.
2. Automatic investing does not assure a profit and does not protect against loss in declining markets. Before investing, investors should evaluate their long-term financial ability to participate in such a plan.
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Multiple Contracts In Multiple Plans
State agency and higher education employees may have one or more separate contracts in one or all of the plans available. Agencies must set up a separate deduction for each plan for the sum of the contract amounts designated by the employee.
Deductions for all of the plans are considered a post-tax deduction, meaning the deduction is taken after taxes are calculated.
The Board is responsible for the creation and content of the following payroll deduction authorization forms:
- Employer authorization form payroll deduction
- Employee payroll deduction form
How To Enroll In A Texas 529 Plan
Families can open the Texas College Savings Plan by clicking the ENROLL now button and completing an application online. The 529 plan account owner will be required to provide their name, Social Security Number or Individual Taxpayer Identification Number , date of birth, mailing address, telephone number and email address, and the beneficiarys name, data of birth and SSN or ITIN.
Families looking to enroll in the Lonestar 529 Plan should consult with a licensed financial advisor.
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Tax Benefits When Contributing To Another State’s 529 Plan
In most cases, you need to contribute to your own state’s 529 plan that is, the one where you live and pay income taxes to receive the state tax benefits.
However, there are seven states that offer “tax parity” on your contributions. This means that you’ll receive the same tax benefit when contributing to any 529 college savings account even if it’s sponsored by another state.
Although you can receive state tax benefits in these seven states when contributing to another state’s 529 plan, some states offer incentives to use their plan instead. For example:
- Arkansas offers a larger deduction for those investing in the homegrown Gift529 program up to $10,000 , vs just $6,000 if you invest “abroad.”
- Pennsylvania 529 accounts are exempt from state inheritance taxes, are not counted for state college financial aid calculations, and are protected from state-based creditors.
Simple To Start And Manage
Getting started with the Plan is easy. You can enroll online or send in an enrollment application. Either way, starting today is a good option. After your account is opened, you can review and manage the account online, including making changes to investment options twice per calendar year, and handling other routine tasks such as change of address or making contributions and withdrawals.
Gift Tax And Estate Tax Benefits
Gifts to 529 plans are partially exempt from the federal gift tax. You can contribute up to $16,000 annually per beneficiary, or up to $80,000 over a five-year period per beneficiary, without triggering the gift tax.1
Keep in mind that your gifts are excluded from your estate, so investing in a 529 plan can be a smart strategy to reduce your estate tax while helping to prepare your loved one for college.
1If the account owner utilizes the special five-year lump sum exclusion and dies within five years of the funding date, the portion of the contribution allocable to the years remaining in the five-year period would be included in the account owners estate for federal estate tax purposes. Consult with your tax advisor for more information.
Beginning on January 1, 2022, the annual gift tax exclusion will be indexed for inflation, increasing the exclusion amount to $16,000 . This means that the maximum gift amount under the five-year averaging provision will also be increased beginning in 2022 to $80,000 .
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This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.
What Are The Drawbacks Of 529 Plans
Some consumers may be concerned about the possibility that investing for college could lead to losses on your contributions, rather than earnings. But its best to start saving in a 529 plan early, when your child is as young as possible. That gives your money more time to grow. Additionally, plans typically offer age-based investment portfolios, which help balance your investments based on how close your child is to college, potentially lowering your risk.
What Are 529 Plans
A 529 plan is a tax-advantaged investment account that can be used to pay for qualified education costs. You can open a 529 plan at any time and name nearly anyone as a beneficiaryincluding yourself. The beneficiary can use the money to pay for school upon reaching adulthood. Anyone can contribute to a 529 plan, including extended family or friends.
Also known as qualified tuition plans, 529 plans are commonly sponsored by statesWyoming is the only state without one. While a handful of states require you to be a resident to use their 529 plans, most do not. However, you may receive extra benefits in your home states plan, so its wise to compare your options nationally before opening an account.
Find your states 529 plan here.
Alterations Cancellations And Effective Date Of Deduction Authorization
Agencies must take the deduction from the salary or wages that are paid on the first workday of a month. If a state employee does not receive a payment of salary or wages on the first workday of a month, the agency may determine which payment of salary or wages to the employee to take the deduction.
Prepaid tuition contract deductions are only made once each month. A state employee may cancel a payroll deduction at any time by submitting a written authorization to the agency payroll office. Any changes regarding the prepaid tuition or college savings contracts must be arranged by the employee with the Board.
If a state employee submits a request to cancel a deduction or a contract within a deduction to his or her state agency, the agency must send a copy of the request to the Board within two weeks of the effective date of the request.
Cancellations and alterations must be processed no later than the first workday of the second month following the month in which the agency receives the authorization. The agency shall notify the Board of the cancellation of any established payroll deductions within two weeks of the cancellation.
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What Happens To A Texas 529 Plan If Not Used
There is no time in which the funds within a Texas 529 plan need to be withdrawn. Unused funds can remain in the account and continue to grow tax-deferred.The account owner may also choose to change the beneficiary, without penalty, to an individual who is a member of the original beneficiarys family and a U.S. citizen. This is not limited to immediate family members funds can be transferred to cousins, nieces, nephews, and other close relatives. The account owner can close the account if not used, but funds in the account will be subject to federal and state income tax as well as a 10% penalty on the account earnings.
And as outlined earlier in this article, 529 plans allow the account owner to withdraw the amount a beneficiary receives in scholarships without incurring the 10% penalty.
Send Yourself A Reminder
We will send you a link to this page so you can access and review it when you are able to.
For more information about 529 plans managed or administered by Ascensus call 1.877.529.2980 or .
Please Note: Before you invest, consider whether your or the beneficiarys 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 that states qualified tuition program. You should consult your financial, tax, or other advisor to learn more about how state-based benefits would apply to your specific circumstances. You also may wish to contact directly your home states 529 college savings plan, or any other 529 plan, to learn more about those plans features, benefits, and limitations. Keep in mind that state-based benefits should be one of many appropriately weighted factors to be considered when making an investment decision.Investment objectives, risks, charges, expenses, and other important information are included in a 529 plan’s offering statement read and consider it carefully before investing.
When you invest in a 529 plan you are purchasing municipal securities whose value will vary with market conditions. Investment returns are not guaranteed, and you could lose money by investing in a 529 plan. Account owners assume all investment risks as well as responsibility for any federal and state tax consequences.
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Give The Gift Of Education
1. The estimated costs for both public and private institutions assume college matriculation at the age of 18. Please note that this is only an estimate and includes only tuition and fees, room and board, and books and supplies. It does not include transportation or other expenses. Future college costs are estimated as of the year of enrollment and do not include incremental cost inflation during college years.Please visit our College Savings Calculator to view college cost and rate of college cost inflation assumptions used in this calculator. You can also use additional tools and functionality such as net cost analysis, tax benefits and cost of waiting to save.
Is Contributing To A 529 College Savings Plan Worth It
If you dont get a federal or state tax deduction for 529 plan contributions, you may be wondering whether its even worth your time to open one. While missing out on a deduction for contributions isnt that great, the other tax benefits you can enjoy can make up for it. Tax-deferred growth and tax-free withdrawals can be a great incentive to save in a 529 plan versus parking money in a regular savings account or CDs.
When opening a 529 college savings plan, be sure to compare your states plan against those offered by other states. Specifically, consider the range of investment options offered, lifetime and annual contribution limits and any fees the plan may charge to find the one thats the best fit for your needs.
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Can You Get A 529 Plan Tax Deduction
Contributing to a 529 college savings account can offer tax advantages, including tax-deferred growth and tax-free withdrawals for qualified education expenses. But you may be wondering if you can also get a 529 tax deduction. While no federal tax break exists for deducting 529 plan contributions, you may be able to claim a deduction or tax credit at the state level. Heres more on how a 529 plan deduction works and when you may be able to claim one on your taxes.
There are actually several tax efficient ways to save for college, and a financial advisor can help you find one thats appropriate for you.
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Texas Tuition Promise Fund
- Lock in tuition prices at todays rates
- Plan is open to all U.S. citizens
- Plan can cover only tuition and required fees as described in the contract or plan type you choose
- Cant cover education expenses like room and board, and books
The Texas Tuition Promise Fund opened its doors as the Texas Prepaid Tuition Program closed down. The plan allows you to purchase Tuition Units that equal undergraduate resident tuition and required fees at Texas public community colleges and universities. This includes seceral high quality schools like the University of Texas, Texas Tech and Texas A& M. You can redeem your units in the future as laid out in your contract — whether for a certain number of semesters or the entirety of your degree — even if tuition prices rise.
Texas law requires all state two-year and four-year community colleges and universities to accept the plan units as payment for your plans corresponding tuition and required fees.
How Much Does The Texas 529 Plan Cost
Each investment portfolio in the Texas 529 College Savings Plan charges a total annual asset-based fee, which currently stretches from 0.5997% to 0.9887%. When compared to portfolio options in plans other states sponsor, the Lone Star States fees range from low to moderately high.
The total annual-asset based fee depends on the portfolio option you choose and its not charged directly. Instead, its indirectly factored out your account.
For example, lets say you invest $10,000 in one of the higher-fee options with a total annual asset-based fee of 0.9426%. Your fees would amount to $96 in one year. This estimation assumes a 5% annual rate of return and a constant fee level for that length of time.
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Watch Your Earnings Build
Your NEST contributions are made with after-tax dollars and earnings grow federally and state tax-deferred while invested. So you dont have to pay taxes on the money youre earning while its in the Plan. Any investment growth is yours to use for college expenses.
When its time to use those funds for school, withdrawals can be tax-free if the funds are used for qualified college expenses like tuition, books, and equipment.1
- There is a $500,000 contribution limit for each beneficiary.
- Nebraska account owners receive significant tax advantages for investing in NEST, including up to an annual $10,000 state income tax deduction.2
- Account owners can receive 529 plan tax advantages regardless of where they live.