Waddell & Reed

529 Plans

General
Federal and State Tax Advantages
Account Owner Stays in Control
Broad Eligibility
High Contribution Limits
Gift Tax Advantages
Estate Planning

General

A 529 plan is a tax-advantaged education savings plan designed to help people save for college expenses. Created by Congress in 1996, it is named after Section 529 of the Internal Revenue Code. Plans are operated by a state or educational institution and administered by financial institutions, such as the Ivy Funds InvestEd 529 Plan plan, that serve as program managers. Each program manager offers a variety of investment options, and you choose the option(s) that is appropriate for your risk tolerance and investing time horizon.

Federal and State Tax Advantages1

  • Earnings grow federal income tax deferred, enabling your account to grow faster than a comparable taxable account.
  • Withdrawals are federal income tax free if used for qualified higher education expenses.
  • States may offer tax breaks such as a deduction for contributions or income exemption on withdrawals.

Account Owner Retains Control

  • The 529 account owner retains control of the account and determines how the investment will be used.
  • The account owner can change the beneficiary at any time and determine when withdrawals are taken. Please note that non-qualified withdrawals are subject to taxation and penalties.3

Broad Eligibility

  • Any U.S. citizen or resident can open (own), contribute to or be a beneficiary of a 529 account.
  • No restrictions based on income, age or residency.

High Contribution Limits

  • Contribution limits in most states are more than $300,000 per beneficiary.

Eligible Institutions

  • Use funds at any U.S. accredited or private college or university, graduate school, community college, vocational or technical school.

Gift Tax Advantages

  • Contributions qualify for the annual $13,000 gift tax exclusion ($26,000 for married couples) allowing substantial contributions to an account without incurring the gift tax.
  • Higher contributions, $65,000 ($130,000 for married couples), can be spread over a five-year period without incurring the gift tax.4

Estate Planning

529 plans offer special advantages for estate planning purposes. Subject to certain limitations, contributions to a 529 plan are generally excluded from your taxable estate for federal estate tax purposes, provided you aren't also the beneficiary on the account.


1 Information is based on current tax laws, regulations, rules and interpretations, which are subject to change at any time. Please consult your tax advisor regarding the tax consequences of your contributions to and withdrawals from any 529 plan.
2 There may be federal gift or generation skipping transfer tax consequences if the new beneficiary is a member of a lower generation than the prior beneficiary.
3 The earnings portion of any non-qualified withdrawals (i.e., generally those not used for qualified higher education expenses) is subject to a federal tax and possibly state tax. In addition, the earnings portion of a non-qualified withdrawal is subject to an additional federal penalty in the form of an additional 10% tax on the earnings portion of the withdrawal. The 10% penalty doesn't generally apply to certain distributions made after the death or disability of the beneficiary or after the receipt of certain scholarships.
4 If the contributor dies before the end of the five-year period, the portion of the gift allocable to the years remaining in the five-year period would be in the contributor's estate for federal estate tax purposes.

An Investor should consider the investment objectives, risks, charges and expenses of a 529 Plan before investing. More information about 529 plans can be found in the issuer's official statement, which should be read carefully before investing.

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