529 Plans – Qualified Tuition Programs

Advantages 

● Contributions to accounts accumulate free of federal income tax and state income tax in states that define income under the federal income tax rules or otherwise provide for exemption

● In certain states, the donor can obtain a state income tax deduction for the contribution

● Upon withdrawal, if funds are used to pay for higher educational expenses or up to $10,000 per year in elementary or secondary school expenses, the beneficiary will not be subject to federal income tax on the earnings in the account

● An account can be established for anyone as long as the beneficiary will potentially attend a primary or secondary school or college; it is not limited to the children of the donor

● Easy to establish and operate

● The income earned in an account is not subject to current federal income tax (ordinary or capital gains) while the account is held in the plan

● Proceeds can be used for tuition (i) of up to $10,000 per year at any public, private or religious primary or secondary  school and (ii) at any accredited two or four year public or private college or university regardless of the state in which the plan is established.  Also, most states allow for the payment of room and board, books, supplies, and equipment from the proceeds

● Revocable by the account owner (subject to income tax and 10% penalty)

● Contributions qualify for the gift tax annual exclusion and Generation Skipping Transfer (GST) tax exemption, and despite ownership by donor, the account is not subject to estate tax at the donor’s death

● No ceiling on income levels for participation

● Donors can pre-fund up to 5 years of annual exclusion gifts ($75,000 in 2021)

● Account owner can rollover to another account or change investment options once every 12 months which provides some level of indirect control of investments

● Not required to establish plan in donor or beneficiary's state of residence but may offer state tax benefits

Considerations

● Account balances may be withdrawn by the donor for non-educational purposes, but any accumulated investment earnings will then be subject to income taxes and a penalty of 10%

● Once funds are contributed, the QTP has complete discretion over how the funds are invested and the donor gives up all control; however, the donor can change plans once every 12 months.  States vary their investment strategies for funds within particular accounts based on the time horizon to expected distributions

● Only cash can be contributed to a QTP; gifts of other assets are not accepted

● For state tax purposes, many states may not respect QTPs established and maintained in another state and may charge their own residents with income taxes on earnings accumulated within another state’s QTP or on earnings that are rolled-over to another state’s QTP.  Accordingly, donors should carefully consider their own circumstances and consult with their tax advisors as to which state’s QTP is most beneficial for them

● Contributions can only be made in cash

● The state determines the investment options, timing of investment decisions, and investment advisors

● Earnings (including capital gains) not used for qualified education expenses are subject to federal income tax under annuity rules plus a 10% penalty

● For state tax purposes, many states may not respect QTPs established and maintained in another state and may charge their own residents with income taxes on earnings accumulated within another state’s QTP or on earnings that are rolled-over to another state’s QTP.  Accordingly, donors should carefully consider their own circumstances and consult with their tax advisors as to which state’s QTP is most beneficial for them

● Contributions require use of gift tax annual exclusion when the donor could make unlimited gifts of tuition free of gift tax

● Each state sets limits on maximum contributions

The Goldman Sachs Family Office

Thank you for reviewing this presentation. Please review the important information below.

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