529 Plans are college savings plans offered by states (or colleges) that are established in accordance with Section 529 of the Internal Revenue Code.
Many financial experts agree that 529 plans are the best way for most families to save for college.
Advantages for Savers
There are a number of attractive features available to savers that you can take advantage of.
- Tax advantages Earnings grow tax-free, and withdrawals are tax-free when used for qualified higher education expenses. Contributions are tax deductible from Pennsylvania taxable state income up to $14,000 per beneficiary each year. For a married couple with incomes of $14,000 each or more, the deduction could total $28,000 per child. Contribute up to $70,000 in a single year ($140,000 for a married couple filing jointly) for each beneficiary without incurring federal gift tax, provided you don’t make any other gifts to that beneficiary in that year or in the following four years.
- Better financial aid treatment
An account does not affect eligibility for financial aid provided by Pennsylvania, such as state grants. Savings held in other 529 plans do not receive this protection.
- Flexible contributions
You can contribute whenever you want, in whatever amount that you want, starting with as little as $25 at a time. You may accumulate up to $368,600 for each Beneficiary (combining all the Pennsylvania College Savings Program accounts held for the same Beneficiary).
- No age or income restrictions
Unlike other federal tax benefits designed to help families pay for college, it doesn't matter how much income you have. Any U.S. citizen or resident alien 18 years or older who has a Social Security number or taxpayer identification number and a permanent address that is not a P.O. Box can open an account.
- Protection from creditors
Assets held in 529 accounts are protected by Pennsylvania law from creditors of the Account Owner or Beneficiary.