November 21, 2019 - NYS 529 College Savings Accounts

Hello everyone. One of my clients asked me to post some tax advice about NYS 529 college savings plans.

Here are some simple summary points about this tax savings vehicle. This article applies to the NYS 529 plan only – these plans differ state by state.
• You can contribute up to $5,000 per taxpayer per year. Married taxpayers can contribute up to $10,000 per year. The number of children with college plans doesn’t matter! So if you have one child – he or she can get $10,000. If you have ten kids, you can contribute $1000 each but no more than $10,000 per year. (no these contributions don’t need to be evenly distributed)
• The contributions are NOT tax deductible for federal tax purposes. Contributes ARE tax deductible on the NYS tax return.
• Distributions from the plan (original funds plus earnings) are both federal and state tax free.
• The funds can be used to pay for a 2 or 4 year college, vocational/technical school or graduate school.
• Specifically, the funds can be used to pay for tuition, some room and board expenses, books, supplies and computer equipment.
• The legislators in Washington have been considering changing the law to allow 529 funds to be used to pay for private elementary and high school education as well. The law has not changed as of yet.
• You are allowed to make an accelerated contribution of up to $75,000 per beneficiary ($150,000 if you’re married) but you’re not allowed to make gifts to the same beneficiary for the next 5 years. (since the max annual gift tax exclusion is $15,000 per person - $15,000 times 5 years = $75,000)
• One beneficiary can have multiple accounts from differnet people. But the max lifetime accumulation per individual beneficiary is $520,000 (I doubt many people face this problem!)
• The fees are $1.30 per $1000 contribution – 0.13% of total annual assets.
• Plans allow you to choose from 13 differnet portfolios that differ in risk profile. Portfolio admins advise that you should invest in a riskier set of investments when your children are young and gradually moved towards a more stable set of investment as the child nears college.

If you have any further questions – feel free to reach out to me. Also feel free to suggest tax topics for me to discuss.

As a brief follow up - if you have a spacial needs child. You can roll over the funds from a 529 account to an ABLE account. You can use the ABLE account to pay for all special needs related expenses. However, you can only rollover $15,000 per year.