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Parents who want to keep control of the account and save money for their child’s college tuition and expenses and/or K-12 tuition can take advantage of federal and possible state tax benefits. Tax-advantaged treatment applies to savings used for qualified education expenses. State tax treatment varies.
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Parents who want to save money for their child’s education and expenses from kindergarten through college can take advantage of federal tax benefits. Generally, the funds must be used for qualified education expenses by the time the child is 30.
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Parents who don’t want to be limited to saving for education can take advantage of a lower tax rate on a portion of the earnings and allow their child to take control of the funds once he or she reaches adulthood.
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Can I deduct my contribution from my state taxes?
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Yes, if you live in Virginia.
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Am I taxed on the earnings in my account?
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There is a limited tax benefit under the parents' tax rate.
An initial amount of UGMA/UTMA earnings remain untaxed or taxed at a very low rate, but all remaining earnings are taxed at the parents’ highest marginal rate.
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Am I taxed on my withdrawals if they’re for qualified education expenses?
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Am I taxed on my withdrawals if they’re not for qualified education expenses?
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Yes, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states.
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Yes, taxable and possible 10% penalty.
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Is there a limit on my income that affects my ability to contribute?
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Yes, your ability to contribute is phased out as your adjusted gross income increases.
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Is there a limit on the total amount of contributions and earnings for the account?
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There's no annual limit on contributions. However, once the total account value (including any earnings) reaches $500,000, no additional contributions can be made.
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The maximum annual contribution is $2,000 per year per beneficiary from all sources.
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Can I make qualified withdrawals for higher education tuition and expenses, which include books, meal plans and housing?
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Yes. You can also make qualified withdrawals for certain apprenticeship programs and can receive a lifetime allowance of up to $10,000 to pay off student loan debt. For distributions made after December 31, 2018, qualified education expenses include expenses for fees, books, supplies and equipment required for the participation of a designated beneficiary in certain apprenticeship programs.
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N/A — this account is not education-specific.
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Can I make qualified withdrawals for K-12 tuition and expenses?
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Yes, only for tuition, which is limited to $10,000 per student per year. (Not all states allow this use of assets in a 529 savings plan, and state tax treatment varies.)
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N/A — this account is not education-specific.
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Can I make qualified withdrawals for non-education expenses?
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N/A — this account is not education-specific.
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What is the impact on my child’s ability to receive financial aid?
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Limited, depending on who is the owner of the account.
Money in a 529 savings plan that is owned by the parent is considered a parental asset and is factored into the Expected Family Contribution (EFC) determination at a lower percentage. Only 5.64% of this savings is counted against financial aid, which can make qualifying for financial aid easier.
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Limited, depending on who is the owner of the account.
If the money in a Coverdell ESA is owned by a parent, then 5.64% of the account value is counted against financial aid.
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Significant. Money in an UGMA or UTMA is considered an asset of the student and is factored into the EFC determination at a higher percentage. This designation can work against your family when your child applies for financial aid.
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Who controls the money in the account?
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Account owner (often a parent or grandparent) maintains control.
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Beneficiary, or the person the account is for (usually a minor), gains control at age 30.
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Beneficiary gains control at the age of majority, usually 18 or 21, depending on state.
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Is there an age limit for the beneficiary?
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No, it can be opened for a person of any age.
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Yes, when the account is established, the beneficiary must be under age 18 or a special needs beneficiary. Additionally, the fund must generally be used by the time the beneficiary reaches age 30.
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Yes, when beneficiary reaches the age of majority, usually 18 or 21, depending on state.
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Can I change the beneficiary of the account?
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Do I have a wide choice of how I invest my money in the account?
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Can I change the way my money is invested in the account?
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Am I able to invest in the American Funds College Target Date Series®, based on the date I'll use the money?
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