Federal gift taxation or the use of the account holder's federal gift tax exemption amount may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given beneficiary in the year of contribution. If you contribute less than the $80,000 ($160,000 for married couples electing to split gifts) maximum, additional contributions can be made without you being subject to federal gift tax or using any of the account holder's federal gift tax exemption, up to a prorated level of $16,000 ($32,000 for married couples electing to split gifts) per year. State tax treatment may vary for distributions to pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school, apprenticeship expenses, and payment of qualified education loans.įootnote 2 The beneficiary must be attending an eligible educational institution at least half-time for room and board to be considered an eligible expense.įootnote 3 Contributions between $16,000 and $80,000 ($32,000 and $160,000 for married couples electing to split gifts) made in one year can be prorated over a five-year period without incurring federal gift tax or using your federal gift tax exemption amount by filing an election on a timely filed federal gift tax return, Form 709. Such repayments may impact student loan interest deductibility. Distributions with respect to the loans of a sibling of the beneficiary will count towards the lifetime limit of the sibling, not the beneficiary. Qualified higher education expenses include expenses for fees, books, supplies, and equipment required for the participation of a beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act and amounts paid as principal or interest on any qualified education loans of the beneficiary or sibling of the beneficiary, up to a lifetime maximum of $10,000 per individual. You can also take a federal income tax-free distribution from a 529 account of up to $10,000 per calendar year per beneficiary from all 529 accounts to help pay for tuition at an eligible elementary or secondary public, private or religious school. Institutions must be eligible to participate in federal student financial aid programs to be eligible educational institutions. The beneficiary must be attending an eligible educational institution at least half time for room and board expenses to be considered a qualified higher education expense, subject to limitations. Qualified higher education expenses include: tuition, fees, books, supplies and equipment required for enrollment or attendance of the beneficiary at an eligible educational institution, certain room and board expenses, special needs services incurred in connection with enrollment or attendance at an eligible educational institution, and computers or peripheral equipment, computer software, or internet access and related services that are to be used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution. The additional tax is waived under certain circumstances.
The earnings portion of a withdrawal that is not used for such expenses is subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes.
Section 529 plans are not guaranteed by any state or federal agency.įootnote 1 To be eligible for favorable tax treatment afforded to the earnings portion of a withdrawal from a Section 529 account, such withdrawal must be used for "qualified higher education expenses," as defined in the Internal Revenue Code. You should also consider whether your home state or your designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds and protection from creditors that are available only for investments in such state's 529 plan. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the plan, which you should carefully consider before investing. Before you invest in a Section 529 plan, request the plan's official statement from your Merrill Financial Solutions Advisor and read it carefully.
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