More money for their education could mean more money in your wallet. See the difference these tax advantages can make over time in the table below.
This example assumes an initial investment of $5,000, monthly contributions of $100, and a 6% annual rate of return over 18 years. The taxable account assumes a 28% federal and 5% state tax rate. The illustration is for illustrative purposes only and does not represent the performance of any specific portfolio.
Federal Income Tax Benefits
529 plans like Edvest offer important income tax benefits. Although contributions are not deductible on your federal tax return, any investment earnings can grow tax-deferred, and distributions to pay for the beneficiary’s college costs come out federally tax-free.
State Income Tax Information
In addition to federal tax benefits, there are state tax benefits as well. For Edvest, tax treatment is as follows:
Contribute and you may qualify for a state tax deduction up to $3,340 for the 2020 tax year. And that’s per beneficiary! Limitations apply.1 Contributions greater than the maximum deduction amount may be carried forward to future tax years. This applies to everyone — parents, grandparents, aunt, uncles and friends — not just the account owner. Also, the principal portion of an incoming rollover from another qualified tuition program qualifies as a contribution eligible for a Wisconsin state tax deduction.
Withdraw Funds Tax-Free for College Expenses
Tuition, room and board, books, computers and more—funds in your Edvest 529 plan account aren’t taxed when spent on qualified expenses. (And they can be used at nearly any accredited university, college or vocational school!)
Estate Tax Planning Benefits
There’s another tax advantage unique to the 529 plan. There’s no federal gift tax on contributions up to $15,000 per year for single filers and $30,000 for married filers. There’s even an option to gift amounts up to $75,000 for single filers and up to $150,000 for married filers if pro-rated over 5 years. This means you could make a one-time gift equivalent to the 5 year amount and it could all qualify for the federal gift tax exclusion. Consult your tax advisor.
1Please refer to the Plan Description book at Edvest.com prior to investing for details on risk, tax benefits, charges and expenses and whether your home state offers tax or other benefits such as financial aid, scholarship funds, or protection from creditors for investing in its own 529 plan. Investments in the Plan are neither insured nor guaranteed and there is the risk of investment loss. Consult your legal or tax professional for tax advice. TIAA-CREF Tuition Financing, Inc. (TFI), Plan Manager. TIAA-CREF Individual & Institutional Services, LLC, Member FINRA, distributor and underwriter for the Wisconsin College Savings Plan.