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This column features responses to a reader's question about how a 529 savings plan works.
Q Could you please explain the way a 529 savings plan works? Is this benefit phased out for higher-income earners?
May I transfer account assets or name someone else as the account owner?
May the account owner or the beneficiary be a trust?
The account owner may be a trust. The beneficiary always must be a person, which excludes a trust.
May I open a 529 for myself?
Yes. Keep in mind, however, that doing this does not remove the assets from your estate. Also, certain 529 programs allow this, whereas others do not.
Who may be a beneficiary?
The beneficiary must be a person. A beneficiary may be your child, your grandchild, your spouse, yourself, or even someone not related to you.
May I invest for one beneficiary in more than one state's 529 plan? Are there contribution limitations?
Yes. A beneficiary may have as many accounts as desired. Contributions to all 529 accounts (including 529 prepaid accounts) for a beneficiary may not exceed amounts deemed necessary to provide for a beneficiary's qualified higher education expenses. As a result, many 529 programs prohibit contributions to your account once the total of that account plus all other 529 accounts (including 529 prepaid accounts) reaches the lowest maximum contribution limit out of all the 529 savings programs in which that beneficiary is named.
What is the deadline for contributing to a 529?
Because contributing to a 529 is considered gifting to the plan's beneficiary, the deadline to gift to a 529 for a tax year is Dec. 31 of that year.
What is the maximum amount that may be contributed to a 529 account?
The maximum amount that may be contributed to a 529 account is established by that program's rules and may be changed each year to reflect the increasing cost of higher education. Once this limit or often some lower "cutoff" limit is reached, no additional contributions will be permitted. Currently, the highest maximum in the market place is around $300,000 and growing.