This month, the Congressional Research Service released an overview of qualified tuitions programs, giving us an opportunity to revisit the tax-advantaged nature of these accounts for higher education.
The primary advantage of qualified tuition programs—typically referred to as 529 plans—is the tax savings they provide. Although there is no federal income tax deduction for contributions to a 529 plan, accounts appreciate federal income tax free and distributions can be taken tax free to pay qualified higher education expenses (QHEE). In addition to federal tax benefits, a partial to full state income tax deduction for plan contributions is offered by twenty-six states. But because 529 plan accounts are intended to be used to pay higher education expenses, distributions of account appreciation that are not used to pay QHEE are subject to a penalty that varies from state to state.
For an analysis of Pre-Paid Tuition Plans, College Savings Plans, pointing out your role as the trusted advisor, see our article in AdvisorFX Advisor’s Journal.
For in-depth analysis of the topic of education savings accounts, see Advisor’s Main Library Section 50.1 Planning For Education Costs
From a tax perspective see Tax Facts Q 810. What is an Education Savings Account?
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