There are several benefits to opening an account in a 529 plan:
- College savings can grow exempt from federal income tax, and gains and withdrawals are also exempt from federal income tax when the funds are used to pay for qualified education expenses.
- The account owner has full discretion over how and when the funds are used, unlike custodial (UGMA/UTMA) accounts where the minor gains control when they reach the age of majority (18 or 21, depending on the state).
- The same plan can be used to fund qualified education costs for more than one child or family member because account owners can change the beneficiary at any time to an eligible “member of the family” (as defined under IRS rules) of the current beneficiary.
- Some states provide a state tax deduction or credit for contributions and a subset of those states provide those state income tax benefits to contributions made in any 529 plan, not just that state’s plan.
- There are no income limitations restricting your ability to make a contribution to a 529 plan and no annual contribution limits (only a maximum contribution limit as further described in the last bullet point below) and, although contributions are considered completed gifts, gift tax exemptions are relatively high. Currently, an individual can contribute $15,000/year to each beneficiary under the annual gift-tax exemption, meaning two parents can contribute $30,000/year per child
- 529 plans allow pre-funding of up to 5 years’ worth of exempt gifts (An individual can contribute up to $75,000 or $150,000 if married filing jointly when initially funding a plan)–this is commonly known as “superfunding”.* You should consult with a qualified tax advisor to confirm eligibility.
- The maximum contribution limit is high; account owners may contribute to the Wealthfront 529 College Savings Plan until the value of all Nevada-sponsored 529 accounts for that beneficiary reaches $370,000.
* If the donor does not survive the five-year period, a pro-rated amount will revert to the donor's taxable estate.
For more information about the Wealthfront 529 College Savings Plan (the “Plan”), download the Plan Description and Participation Agreement or request one by calling
844-995-8437 or emailing firstname.lastname@example.org. Investment objectives, risks, charges, expenses, and other important information are included in the Plan Description and Participation Agreement; please read and consider it carefully before investing. An investment in the Plan is not insured or guaranteed by the FDIC or any federal or state government or agency. You could lose all or portion of your investment. Wealthfront Brokerage Corporation serves as the distributor and the underwriter of the Plan.
Before you invest, consider whether your or the 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 that state’s qualified tuition program
The Plan is administered by the Board of Trustees of the College Savings Plans of Nevada (the “Board”), chaired by the Nevada State Treasurer. Ascensus Broker Dealer Services, Inc. (“ABD”) serves as the Program Manager.
Earnings on nonqualified withdrawals are subject to federal income tax and may be subject to a 10 percent federal tax penalty, as well as state and local income taxes. The availability of tax and other benefits may be contingent on meeting other requirements.
The information contained is provided for general informational purposes, and should not be construed as investment advice. Nothing should be construed as tax advice, solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Wealthfront clients. This article is not intended as tax advice, and Wealthfront does not represent in any manner that the tax consequences described here will be obtained or will result in any particular tax consequence.