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Types of 529 Plans
Many details of 529 college savings plans vary by state, they generally come in two forms:
College Savings Plan or Prepaid Tuition Plans.
Funds may be withdrawn without penalty if the beneficiary receives a scholarship (withdrawals can be made up to the scholarship amount), or in the event of the death or disability of the beneficiary. Ordinary federal and state income taxes would be owed on any investment earnings included in gross income.
1 A federal 10% penalty may be imposed on the earnings portion of a non-qualified withdrawal in addition to ordinary income tax.
2 Annual exemption amounts are subject to revision by the Internal Revenue Service.
3 If the Account Owner utilizes the special five-year lump sum exclusion and dies within five years of the funding date, the portion of the contribution allocable to the years remaining in the five-year period (beginning with the year after the Account Owner’s death) would be included in the account owner’s estate for Federal estate tax purposes. Clients should consult their tax advisor.