Treasurer McCord Reminds Families 529 Plans Offer Great Tax Benefits, Create Lasting Legacy
Encourages Pennsylvanians to consider support for college savings accounts during National Estate Planning Awareness Week
Harrisburg – As a record number of households struggle with student loans, State Treasurer Rob McCord said many grandparents are playing a more active role in helping their grandchildren afford college, and he added 529 plans offer great tax advantages and estate planning benefits.
“The average debt load of a Pennsylvania graduate in the Class of 2011 is now $29,959, which is about 4.75% higher than last year,” Treasurer McCord said. “It is a challenge for many young families to save for their children’s higher education at a time when they still carry a significant amount of their own student debt.
“As tuition costs continue to soar, we’re seeing more and more grandparents open a Pennsylvania 529 college savings account for their grandchildren. And as many financial planners would point out to their clients, those grandparents enjoy significant tax savings,” Treasurer McCord continued.
Seniors find a number of 529 plan features attractive, such as a special federal gift tax exclusion that allows account owners to contribute a large sum in a single year. The Internal Revenue Code allows for a five-year acceleration of the annual federal gift tax exclusion, which means someone can contribute up to $65,000 per taxpayer ($130,000 for married couples filing jointly) per beneficiary in one year without incurring federal gift tax consequences.
Also, only 529 plans allow a contributing account owner to remove assets from their federal taxable estate, but still retain control over the funds and take them back later should the need arise. If withdrawals are not used for qualified education expenses, earnings may be subject to income taxes and a 10% federal tax penalty on earnings might apply. Custodial accounts and trusts do not offer this flexibility.
Treasurer McCord said the Pennsylvania 529 College Savings Program offers a unique feature in that the entire value of a PA 529 account is exempt from state inheritance tax. Depending on the heirs, that could be a savings of up to 15% of the assets.
Additionally, contributions to a PA 529 plan are deductible from Pennsylvania income taxes (up to $13,000 per beneficiary, or up to $26,000 for married couples provided each individual has income of at least the amount deducted), grow tax free, and when used for qualified educational expenses, are exempt from federal and state taxes.
“A Pennsylvania 529 college savings account allows seniors to remain in control of their assets, offers gift and inheritance tax benefits, and -- most importantly --provides a brighter future for their loved ones,” Treasurer McCord said.
The PA 529 College Savings Program provides two ways to save: the PA 529 Guaranteed Savings Plan (GSP) and the PA 529 Investment Plan (IP). Both plans provide flexibility to pay for college expenses at most higher education institutions across the country. The primary difference between the two plans is the way savings grow.
The PA 529 GSP is designed to help savings grow to meet the future cost of education. When used for qualified higher education expenses, PA 529 GSP contributions grow based on tuition inflation (subject to fees and premiums). For example, if you save enough for one semester today at a State System of Higher Education university, you will have enough for one semester there in the future, no matter when or how much tuition has increased in the meantime.
The second PA 529 plan, the PA 529 IP, features low fees and more than a dozen conservative and aggressive investment options from The Vanguard Group, one of the nation’s largest financial services companies.
“Too many Pennsylvanians are struggling in this economy, and it will be worse for future generations if they are unable to earn an education beyond high school,” said Treasurer McCord. “I hope that this week will prompt Pennsylvanians to consider a 529 plan as part of their estate planning strategy.”
Please consult an estate planning professional to learn how potential plan benefits impact your specific situation.
Visit PA529.com or call 1-800-440-4000 to learn more information, open an account, or make a contribution to a PA 529 plan. The website also offers free college savings webinars. The live online presentations allow participants to have their questions answered by a PA 529 college savings expert.
Media contact: Carrie Fischer Lepore, 717-772-2416 or news@patreasury.gov
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The Pennsylvania 529 College Savings Program sponsors two plans – the PA 529 Guaranteed Savings Plan (GSP) and the PA 529 Investment Plan (IP). The guarantee of the PA 529 Guaranteed Savings Plan is an obligation of the GSP Fund, not the Commonwealth of Pennsylvania or any state agency. Before investing in either plan, please carefully read that plan’s disclosure statement (available at www.PA529.com or by calling 1-800-440-4000) to learn more about that plan, including investment objectives, risks, fees, and tax implications.
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