Named after the IRS Code Section that created them, 529 plans assist parents and family members in saving money for a beneficiary’s higher education. There are many 529 plans throughout the country but this article will focus on the Indiana College Choice 529 plan.
The Indiana College Choice 529 plan is very flexible and affordable. It also allows tax-deferred growth, tax-free withdrawals on qualified expenses, a tax credit against your Indiana income tax liability, flexibility in education options and control over how the assets are used.
Indiana College Choice 529: FLEXIBLE and AFFORDABLE
Contributions are affordable with a minimum of $10 to a maximum of $450,000 per beneficiary. There are also low average costs ranging from 0.18% to 0.82% on the account balance. Annual account maintenance fees are nominal and are waived for accounts with balances greater than $25,000 and/or for Indiana residents. The investment decisions can be handled online or through an investment broker.
529 plans offer the flexibility of changing the beneficiary to another family member. A relatively recent update expanded the definition of family member to include daughters, sons, stepsons, stepdaughters, and decedents of any such person, as well as brothers, sisters, step-siblings, father and mother, stepfathers and stepmothers, and many others. Another benefit of 529 plans is that they may be used at various eligible colleges, universities and vocational schools around the country and are not limited to Indiana higher education facilities.
Indiana College Choice 529: TAX DEFERRED GROWTH & WITHDRAWALS – FEDERAL and STATE TAX BENEFITS
Earnings on 529 contributions grow tax-deferred from both federal and state income taxes. In addition, these earning are tax-free on withdrawals for qualified expenses such as tuition, fees, books, and room and board.
Note that earnings on non-qualified withdrawals are subject to federal and state income tax and may also be subject to a ten percent (10%) federal penalty tax. Also, note that contributions to a 529 plan are not deductible themselves.
Indiana taxpayers can get a state income tax credit up to or equal to 20% of their contributions not to exceed $1,000 per calendar year.
From a gift tax perspective, 529 contributions qualify for the annual $15,000 gift exclusion. Additionally, five (5) years’ worth of gifting can be made in one year excluding $75,000 ($150,000 for married couples) from federal estate taxes.
We recommend starting a 529 plan for your chosen beneficiaries as early as possible. There is a significant benefit with the tax-deferred growth attribute to use the time value of money to grow the account. It is never too late to start a 529 plan. Although you will minimize the tax-deferred aspect of the plan by starting later, you may still be eligible for the Indiana state income tax credit. Please email me or call us at 317-636-5561 with any questions.