(ARA) – Figuring out how to pay for college may be more daunting than completing the course work it takes to graduate. If you’re a parent or grandparent, you’ve likely considered the question of how to pay for your family’s education, and it’s possible that answers have not been easy to find.
Almost everyone wants to contribute financially to their children’s or grandchildren’s education, according to The Hartford’s fifth annual college savings survey. However, only 64 percent of respondents are aware of tax-efficient ways to save. With many college saving options available, determining which ones are best for you and your family can be confusing.
529 plans are a great option for tax-advantaged savings. A 529 plan allows you to make investments with earnings that are tax-exempt when they are applied toward eligible higher education expenses.
If you are in the process of developing a college savings plan for your children or grandchildren, it’s always a good idea to talk to your financial advisor. If you’re confused about college savings options, particularly about 529 plans, you are not alone. The Hartford survey found that 43 percent of parents and grandparents don’t fully understand this investment tool. Before you talk to your advisor, here are the answers to some frequently asked questions about 529 plans.
How much can you contribute to a 529?
Many states allow the account owner to take a state income tax deduction for contributions made to their plan each year. The amount of the deduction varies by state, and if you roll the funds to another 529 plan not sponsored by that state, your deduction may be subject to recapture.
Under federal gift tax rules, you can contribute up to $13,000 per year for each beneficiary of a 529 account without gift tax consequences. You can also make a tax-exempt contribution of $65,000, or $130,000 for married couples, per beneficiary, once every five years. If you treat the gift as being made over five years, and die before the end of the five year period, the portion of the gift allocatable to the period after your death will be included in your estate. Any additional gifts given by you to the same Designated Beneficiary in the five year period will be subject to federal gift tax. You should consult with your tax advisor for more information.
How can 529 funds be used?
In addition to tuition expenses, beneficiaries of a 529 plan can use the proceeds to pay for fees, room and board, books and any equipment required for classes at an educational institution. The funds can be used at most two- and four-year accredited post-secondary institutions in the United States, including trade and vocational schools. You may also be eligible to use the funds at a foreign institution.
What happens if I don’t use the funds for education expenses?
The earnings would be treated as ordinary taxable income and could be subject to a 10 percent federal income-tax penalty. Such withdrawals may also have state income tax implications. Certain exceptions are allowed. For example, if your child earned a scholarship and didn’t need the funds to pay for college, withdrawals in the amount of the scholarship would likely come without penalty.
Who can open an account?
Any adult who is a U.S. citizen or resident can open an account. There are no income restrictions. Some accounts have restrictions on the account owner’s state of residency. The Hartford manages The Hartford SMART529 plan that’s available nationwide, as well as CHET Advisor which is available to Connecticut residents. Both plans may be purchased through a financial advisor.
Who has control of the account?
The account owner has complete control over how contributions are invested and when withdrawals are made.
Who can contribute?
Most plans allow anyone, including friends and relatives to contribute. A 529 contribution is a great way to give the gift of education to a friend or relative who is planning on attending college.
For more information on 529 college savings plans, contact a financial advisor or visit www.hartfordinvestor.com.
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You should carefully consider the investment objectives, risks, charges and expenses of SMART529 and CHET Advisor and their Underlying Funds before investing. This and other information can be found in the Offering Statement for SMART529 and the Disclosure Booklet for CHET Advisor and the prospectuses or other disclosure documents for the Underlying Funds, which can be obtained on www.HartfordInvestor.com or by calling 866-574-3542. Please read them carefully before you invest or send money. SMART529 and CHET Advisor are distributed by Hartford Securities Distribution Company, Inc. Member SIPC.
West Virginia and Connecticut provide their residents with tax advantages for investing in SMART529 and CHET Advisor. If you reside in or have taxable income in a state other than West Virginia or Connecticut, you should consider whether your state has a qualified tuition program that offers favorable state income tax or other benefits exclusive to your state’s program that are not available under the SMART529 and CHET Advisor plans.
Investments in SMART529 and CHET Advisor are not guaranteed or insured by the State of West Virginia, the State of Connecticut, the Board of Trustees of the West Virginia College Prepaid Tuition and Savings Program, the Connecticut Higher Education Trust, the West Virginia State Treasurer’s Office, the Connecticut State Treasurer’s Office, Hartford Life Insurance Company, The Hartford Financial Services Group, Inc., the investment sub-advisors for the Underlying Funds or any depository institution and are subject to investment risks, including the loss of the principal amount invested, and may not be appropriate for all investors.
This information is written in connection with the promotion or marketing of the matter(s) addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, you should consult your own tax or legal counsel for advice.
SMART529 is offered by the West Virginia College Prepaid Tuition and Savings Program Board of Trustees and is administered by Hartford Life Insurance Company.
CHET Advisor is administered by the Treasurer of the State of Connecticut as the trustee of the Connecticut Higher Education Trust Program, and Hartford Life serves as Plan Manager.
“The Hartford” is The Hartford Financial Services Group, Inc. and its subsidiaries.
“The Hartford” is a registered trademark of Hartford Fire Insurance Company.
“SMART529” is a registered trademark of the West Virginia College Prepaid Tuition and Savings Program Board of Trustees.
