A Section 529 plan can help.
An investment in your child's future may be the most important investment you will ever make. We work to understand your vision for your child's future, including the type of school they will attend and how much you are able to save— so we can help you find the right solution.
Tax-advantaged savings for your child's education
A Section 529 plan provides a tax-advantaged way to invest for education expenses. Withdrawals, including any earnings, are federal (and possibly state and/or local) income tax-free as long as the money is used for qualified higher education expenses.1 Funds can be used for tuition and fees, room and board, books, required supplies and equipment, computers or peripheral equipment, computer software or internet access and related services.1,2 Other acceptable expenses include payments for special needs beneficiaries at any accredited school, including public or private universities, graduate schools, community colleges, and accredited vocational and technical schools.3
For distributions taken after December 31, 2018, qualified higher education expenses include expenses required for the participation of a designated beneficiary in a registered and certified apprenticeship program and payment of student loans up to a lifetime maximum of $10,000 for a designated beneficiary or a sibling of the designated beneficiary (the lifetime maximum is applied separately for the sibling’s loans versus the designated beneficiary’s loans).1
You can also take federal income tax-free distributions from a Section 529 plan of up to $10,000 per year per beneficiary to help pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school. State tax treatment may vary.1
You can make annual contributions of up to $15,000 ($30,000 for married couples electing to split gifts) without incurring a federal gift tax. And contributions are generally considered completed gifts and are excluded from your estate for federal estate tax purposes.
Under a five-year gifting provision, you can make account contributions of $75,000 ($150,000 for married couples electing to split gifts) for each beneficiary in one year, as long as no additional contributions or other gifts are made during the five-year period.4 This election generally will not result in a gift tax liability for you or reduce your federal unified estate tax credit. This advantage can be attractive if you have multiple children or grandchildren. By making multiple gifts, you can remove significant assets from your taxable estate while helping to pay education costs for your loved ones.
You retain control of the assets and can change the beneficiary at any time. If the current beneficiary does not use the funds, you can change the beneficiary to an eligible family member of the prior beneficiary without tax consequences.5
The College Planning Calculator can help you take a closer look at how much you may need to invest to meet your college funding goals.
1 To be eligible for favorable tax treatment afforded to the earnings portion of a withdrawal from a Section 529 account, such withdrawal must be used for "qualified higher education expenses," as defined in the Internal Revenue Code. The earnings portion of a withdrawal that is not used for such expenses is subject to federal income tax and may be subject to a 10% additional federal tax, as well as state and local income taxes. The additional tax is waived under certain circumstances. The beneficiary must be attending an eligible educational institution at least half time for room and board to be considered a qualified higher education expense, subject to limitations. Institutions must be eligible to participate in federal student financial aid programs. Some foreign institutions are eligible. You can also take a federal income tax-free distribution from a 529 account of up to $10,000 per calendar year per beneficiary from all 529 accounts to help pay for tuition at an elementary or secondary public, private or religious school.
For distributions taken after December 31, 2018 qualified higher education expenses now include expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act and amounts paid as principal or interest on any qualified education loans of the designated beneficiary or sibling of the designated beneficiary, up to a lifetime maximum of $10,000 per individual. Distributions with respect to the loans of a sibling of the designated beneficiary will count towards the lifetime limit of the sibling, not the designated beneficiary. Such repayments may impact student loan interest deductibility. State tax treatment may vary for distributions to pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school, apprenticeship expenses, and payment of qualified education loans.
2The beneficiary must be attending an accredited institution at least half time for room and board to be considered an eligible expense.
3Institutions must be eligible to participate in federal financial aid programs. Some foreign institutions are also eligible.
4Contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples electing to split gifts) made in one year can be prorated over a five-year period without subjecting you to gift tax or reducing your federal unified estate and gift tax credit. If you contribute less than the $75,000 ($150,000 for married couples electing to split gifts) maximum, additional contributions can be made without subjecting you to federal gift tax, up to a prorated level of $15,000 ($30,000 for married couples filing jointly) per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given beneficiary in the year of contribution. For contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples electing to split gifts) made in one year, if the account owner dies before the end of the five-year period, a prorated portion of the contribution may be included in their estate for estate tax purposes. Please consult your tax and/or legal advisor for such guidance.
5The participant/account owner can change the designated beneficiary to another qualified member of the family of the designated beneficiary (as defined under the Internal Revenue Code) without adverse income tax consequences.
Before you invest in a Section 529 plan, request the plan’s official statement from your Merrill Lynch Wealth Management Advisor and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the plan, which you should carefully consider before investing. You should also consider whether your home state or your designated 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 such state’s Section 529 plan. Section 529 plans are not guaranteed by any state or federal agency.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.