Section 529 Programs 2025

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Notice 2009-1 provides guidance on section 529 qualified tuition programs, allowing participants to change their investment strategies twice in 2009 due to market conditions, modifying previous restrictions. It emphasizes compliance with existing rules and invites comments on the notice.

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What are the disadvantages of a 529 plan?

529 Cons. If not used for college expenses, there is a 10% additional tax on earnings. If not used for qualified expenses, all earnings are taxed as ordinary income (even if the actual earnings were capital gains). The management fees for a 529 account are typically higher than the fees for comparable mutual funds.

What is Section 529 of the tax code?

A qualified tuition program (QTP), also referred to as a section 529 plan, is a program established and maintained by a state, or an agency or instrumentality of a state, that allows a contributor either to prepay a beneficiarys qualified higher education expenses at an eligible educational institution or to

What is the downside of a 529 plan?

The account owner of a 529 plan holds all of the legal power. They can change the beneficiary or liquidate the account (with penalty) at any time. This could be a disadvantage if the owner of your or your childs 529 plan has a change of heart about where to direct their investment.

How does a section 529 plan work?

A 529 college savings plan is a state-sponsored investment plan that enables you to save money for a beneficiary and pay for education expenses. You can withdraw funds tax-free to cover nearly any type of college expense. 529 plans may offer additional state or federal tax benefits.

How does the 529 tax deduction work?

There are no tax consequences if you change the designated beneficiary to another member of the family. Also, any funds distributed from a 529 plan are not taxable if rolled over to another plan for the benefit of the same beneficiary or for the benefit of a member of the beneficiarys family.

Do I need to include 529 distributions on my tax return?

The earnings portion of a taxable 529 plan distribution must be reported on the beneficiarys or the 529 plan account owners tax returns. To calculate the taxable portion of the 529 plan distribution: Divide the AQEE by the total 529 plan distribution (Form 1099-Q, Box 1)

What are qualified expenses for Section 529?

A 529 plan is a powerful tool for saving for education that offers tax-free withdrawals on qualified expenses. You can use a 529 plan for tuition, fees, books, computers, room and board, student loans (up to $10,000), and K-12 tuition (up to $10,000 per year), with each subject to specific guidelines.

Section 529 Programs 2025

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