Giving the gift of Education with a 529 Education Savings Plan

If you want to give a gift to a child that will have a lasting impact on his or her life, consider contributing to the child’s college savings plan using a 529 Savings Plan.


Why use a 529 plan?

529 plans are state-sponsored education savings plans with tax benefits that may help your gift stretch further.
With a 529 plan, investment earnings grow free from taxes while in the account.

Withdrawals are free from federal taxes, and perhaps state taxes also, if used for qualified education expenses. Examples of qualified college expenses include tuition, fees, computers, and books, as well as room and board if the student is enrolled at least half time.

Plus, some states offer a state tax deduction or credit for contributions to a 529 plan. In most of those states, the tax benefit can only be claimed for contributions to the state’s own 529 plan, but there are a few states that offer a state tax benefit for contributions to any state’s 529 plan.

Two ways to contribute:

1. You can open a 529 account yourself and name the child as the account’s beneficiary. Opening the account yourself gives you control of the account. As the account owner, you control how the account is invested and the amount and timing of the withdrawals. You can change the beneficiary on the account to a member of the beneficiary’s family – a handy feature if your original beneficiary decides not to go to college. You can even withdraw money for reasons unrelated to education as long as you pay income tax and a 10% tax penalty on the earnings portion of the withdrawal.

2. You can generally contribute to an existing 529 account that someone else, such as the child’s parents, has set up for that child.

A tax efficient way to transfer wealth

Funding a 529 account may be an attractive option for individuals with taxable estates who want to help a child save for college. Here’s why.

You can fund a 529 plan account with up to $75,000 ($150,000 for married couples) in a single year and not trigger the federal gift tax. That’s five times the annual gift tax exclusion amount for 2020.

A special tax provision, unique to 529 plans, allows contributions between $15,000 and $75,000 (2020 amounts) to be treated for federal gift tax purposes if they were made in equal portions over five years. This enables you to apply the annual exclusion to a portion of your contribution in each of the five years.

Please consult with us for more information about 529 plans.

With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to provide clarity and calm amidst the chaos. Where there is uncertainty we look for facts. We call our approach evidence-based investing. Call us today at 802-878-2731 to schedule a strategy session and begin building your road map to financial success. 

Article published in November 2020 edition of Eye on Money. If you would like to be added to our mail list please email