What's a 529 Plan?


What's a 529 Plan?

529 Plans offer tax-advantaged investments to encourage saving for future higher education expenses of a designated beneficiary (commonly one's child or grandchild).  States offer and administer these plans, named after Section 529 of the Internal Revenue Code.  Wisconsin's two plans, Edvest and Tomorrow's Scholar, are managed under contract by TIAA-CREF Tuition Financing, Inc. and Voya Investment Management.

All withdrawals from 529 plans for qualifed higher education expenses remain free from federal income tax.  Wisconsin (and most states) mirror the federal rules for state tax purposes.  Some states allow additional tax benefits for certain new contributions, usually for that state's plan(s).  Currently, Wisconsin residents are allowed a subtraction from their state taxable income  of up to $3,140.  Residents of other states should check to see if state tax benefits are available in your home state.

Variety of investment choices

Investments in 529 plans, including Edvest and Tomorrow's Scholar, look much like a 401(k) or IRA retirement plan that includes mutual funds or similar investments. You choose among aggressive stock portfolios, blended portfolios of stocks and bonds, a guaranteed interest account, and even a CD portfolio depending on your preference and investment objectives.  There are also age-based tracks where the underlying investments become more conservative as the beneficiary becomes closer to the college years.  You may also select risk-based investments that remain in the same fund or combination of funds regardless of the beneficiary's age.  Investors are advised to carefully read the Program Description materials to understand the investment objectives and related risks for the choices you make.

Eligibility and Coverage

  • Parents, grandparents, other relatives, trusts, guardians--anyone can open an account [as long as you are 18 or older].
  • There are no enrollment fees.
  • Any adult can contribute to an open account.
  • Individuals can also open accounts for their own use, great for non-traditional or returning students...some continuing education classes, too. 
  • Tuition, fees, room & board, books, and required equipment are all eligible expenses.
  • Withdrawals may be used at most public and private higher education institutions nationwide, and at many international schools.

 Tax Benefits

  • Contributions reduce your 2017 state taxable income dollar-for-dollar up to $3,140 per beneficiary (child).  You no longer have to be an immediate family member, nor do you need to be the owner of the Edvest or Tomorrow's Scholar accounts to qualify for this benefit.  The deadline is April 16, 2018, for 2017 tax returns. 
  • Contributions in excess of this annual amount are accepted and may be carried forward to benefit the next or later taxable years.
  • This per beneficiary benefit amount may be increased each year, based on an inflation calculation.
  • Earnings are state and federal tax-exempt when used for qualified expenses, generally tuition, fees, books, room and board.  Check with the school you are attending to get a current list and amount of allowable expenses, usually called the 'cost of attendance.'
  • Special gift and estate tax benefits of up to $70,000 apply.  Seek professional tax counsel to see how this may affect you.

For more information on direct-sold Edvest, go to www.edvest.com. Tomorrow's Scholar is only available through financial advisors and fee-only planners.

There may be state-specific tax benefits for residents using their home state plan.  A list of other 529 plans is at www.collegesavings.org.

 

Prior to July 2011, the Wisconsin 529 College Savings Program was attached to the Office of the State Treasurer (OST).  With 2011 Wisconsin Act 32, all activities, communications, and duties of the Program at OST were transferred and are now handled by the Department of Administration.

 

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