How 529 Plans Can Help With College — and Estates | American Funds

How 529 Plans Can Help With College — and Estates

November 2015

How 529 Plans Can Help With College — and Estates

Saving for college is a major investing goal for many families — and it may offer tax advantages as well. This video explains how 529 college savings plans work, as well as the potential tax benefits when considering estate issues.



Narrator: The benefits of of an education are undeniable. There’s a strong correlation between level of education and earning power. A recent Gallup poll found that 73% of parents were worried about the cost of college – and for good reason. For a child born in 2014, the estimated cost to attend a four-year public college will be around $285,000. Four years of private college are expected to cost over $558,000. Today, college tuition and student loans are the top financial concern of young adults ages 20 to 28. For your children, grandchildren, even nieces, nephews and other relatives or friends, one of the best things you can give them is the gift of a college education. It can help fund their future, and everyone benefits from starting today.

You can create 529 accounts for as many individuals as you like. Individuals can contribute up to $14,000 annually per account without triggering gift taxes. Additionally, individuals can make an accelerated five-year gift of up to $70,000. Married couples can contribute up to $28,000 annually per account without triggering gift taxes. Additionally, married couples can make an accelerated five-year gift of up to $140,000. In doing so, not only are you moving money out of your estate without being subjected to gift taxes, you’re giving your loved ones much needed money for tuition and other educational costs – funds they won’t be taxed on if used for qualified educational expenses.

Another benefit of 529 plans is that while the future student uses the funds for educational costs, you control the account, so you can be sure the funds will only be used for qualified educational expenses, such as tuition, room and board, and books. You can adjust the accounts’ investments twice per year, and if the beneficiary doesn’t use the money, part or all can be assigned to a new beneficiary within the family without income tax consequences.

We’ve talked a lot about big numbers, but when it comes to saving for college, every bit helps. You can contribute as often as you like, with very generous contribution limits. And it doesn’t matter if college is just around the corner or 18 years away, you can start saving today.

American Funds, a part of the Capital Group, has helped investors pursue their goals since 1931. And CollegeAmerica is the nation’s largest college savings plan by assets under management, serving more than 1 million families for the benefit of 2 million future college students. Please reach out to your financial advisor to learn more about how you can save for college for your loved ones.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and CollegeAmerica Program Description, which can be obtained from a financial professional and should be read carefully before investing. CollegeAmerica is distributed by American Funds Distributors, Inc. and sold through unaffiliated intermediaries. 

Depending on your state of residence, there may be an in-state plan that provides state tax and other state benefits, such as financial aid, scholarship funds and protection from creditors, not available through CollegeAmerica. 

If withdrawals from 529 plans are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. State tax treatment of K-12 withdrawals varies. Please consult your tax advisor for state-specific details.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.