Real situations

79 worked examples.

Every rule in the book arrives with a family attached to it — a grandparent superfunding in one day, a student protecting his aid eligibility, a parent going back to night school on his daughters' accounts. Each one sits on the page of the rule it demonstrates.

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Five that surprise people

Student · Financial aidVinni

Vinni is poor but has worked hard through high school to save $10,000 for college. He finds out that the student SAI is 20%, meaning the $10,000 threatens to reduce his financial aid eligibility by $2,000! Vinni asks his grandparents (or trusted neighbors) to start a 529 account in his name and transfers the $10,000 to that 529 account. Their SAI is 0% on the Student Aid Index (SAI) calculation, meaning the same $10,000 reduces financial aid eligibility by $0. Over 4 years of school at $20,000 tuition, books, rent, and food per year, this could mean an approximate $16,000 difference in student aid eligibility for Vinni.

Read the rule →Parent · Beneficiary changeBob

Bob decided to go back to night school MBA at age 40. As the accounts’ owner, he chooses to use the 529 plans he has formed for his two daughters–ages 6 and 4–thinking they won’t need them for a while. Bob changes the beneficiary of each account to himself, uses some of the funds for his school, then in 2 years changes the beneficiaries back to the girls as he finishes. (Bob then uses the raise he gets for his new degree to contribute more money back to the girls–a happy ending!)

Read the rule →Grandparent · ControlIsaac

Isaac contributes to his granddaughter’s fund because his son (her father) is an irresponsible drunk most of the time. Isaac is concerned the son could abuse her 529 funds, so he designates his trust as the successor owner in this case. The responsible trustee will care for the granddaughter’s education expense needs.

Read the rule →Employer · Institutional accountDon

Don wants the best for his 15 employees and their children. As CEO, he starts accounts for up to $1,000 per employee per year to split between themselves (to fund either qualified student debt repayment or their continuing education) and their children’s accounts.

Read the rule →Grandparent · EstateRobert

Robert’s father passes away, leaving him with $500,000 at age 69. Robert is doing fine in retirement and does not need this extra benefit. He wonders how he can pass the money tax free to his 6 children, their spouses, and 10 grandchildren. Robert gifts $19,000 to each 529 of these 22 people, and keeps the remainder for himself. He receives a tax deduction on a portion of the contributions, up to the state’s maximum amount.

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Every example

Which rules come with a worked example?

57 of the guide's 76 rules do. Open the rule to read its example in full.

Account Basics 17 examples

  1. You decide the beneficiary.2
  2. Each account should have a Successor, in the case of the Owner’s death.1
  3. You can decide to CHANGE your ownership to someone else without a fee at any time.1
  4. You can decide to CHANGE the Beneficiary to someone else–including yourself–without a fee at any time.1
  5. You can decide to CHANGE the Successor to someone else without a fee at any time.1
  6. Account owners can have unlimited family and friend beneficiary accounts.2
  7. Beneficiaries may have unlimited accounts in their name from different parents, grandparents, kind friends, etc.2
  8. Deposits are made via direct payroll deposit, check, ACH, or wire. You can link your bank account for monthly or one time contributions.2
  9. Employers, trusts, and other entities may contribute.1
  10. Tax returns or PFDs can be directly gifted to the 529 plan.1
  11. Special occasion gifts can be made by others for graduation, birthday, or other special days.2
  12. Transfers may be made between accounts of family members.1

Understanding Tax Differences 11 examples

  1. In which state plan should I get an account?1
  2. Is a Tax Deduction or Credit better for contributions?2
  3. Understanding qualified tax-free growth–a major benefit of 529 accounts.1
  4. There is a high maximum amount allowed in 529 accounts.1
  5. Contribution deadlines correspond to the current calendar/tax year.1
  6. Receiving Distributions2
  7. For any non-qualified disbursement, any taxes or fees are ONLY on the earnings portion.1
  8. Tax penalties on earnings are waived in some situations.2

Fund Selection & Distribution Logistics 3 examples

  1. You can change your Fund Allocation up to 2 times per year without a fee at any time.1
  2. Your 529 account can lose money. Most fund selections are not FDIC insured.1
  3. Time1

Using the 529 for K–12 7 examples

  1. You may pay for school tuition, books, and software through a 529 account.1
  2. You may pay for a tutor through a 529 account.3
  3. What is a “tutor”?1
  4. Beneficiaries with disabilities can pay for treatments.1
  5. High school age benefits include test fees and advanced course tuition.1

Post-Secondary School 13 examples

  1. How much should I help?1
  2. 529 accounts have limited effects on need-based student aid SAI calculations.1
  3. You may pay for tuition, books, or fees with a 529 account.1
  4. Postsecondary Credentialing, Certificates, or Licensing expenses qualify.2
  5. What if your beneficiary receives a scholarship?1
  6. You may pay for room and board if the student is enrolled one-half time.3
  7. You may pay for computer hardware, software and internet access fees while enrolled.2
  8. What may you NOT spend your 529 funds on?1
  9. Account owners are responsible for keeping any documents that support a qualified or nonqualified withdrawal.1

After Graduation 10 examples

  1. You may want your OWN account after college to pay for up to $10,000 qualified education loan principal or interest.1
  2. You can repay a sibling’s student loans up to $10,000 as well.1
  3. You may transfer any extra funds to a family member (younger sibling?, grandchild?) who needs them.1
  4. You could consider establishing a “ladder of giving” approach for your children and then grandchildren.1
  5. You may roll over any extra funds to a Roth for the beneficiary up to $35,000.1
  6. You may pay for continuing education through a 529 account, the rest of your entire career.1
  7. You may pay for extra credentialing, registered apprenticeship expenses, or certificates through a 529 account.1
  8. You may pay for your Credentialing expenses or your occupational licensing through a 529 account, including years after graduation.2
  9. You may pay for your licensing through a 529 account, throughout your career.1

Estate Planning 7 examples

  1. Contributions to your 529 plans are considered “completed gifts” to the beneficiary.1
  2. 529 plans allow up to $190,000 to be contributed without gift tax at one time.2
  3. A 529 account can help avoid the Generation-Skipping Transfer (GST) tax1
  4. There is no Generation-Skipping Transfer (GST) tax on 529 distributions.1
  5. There is bankruptcy protection through a 529 account.1
  6. Multigenerational wealth transferred through superfunding the 529 account.1

Maximizing 529 Advantages 7 examples

  1. Maximizing Funding2
  2. Maximizing K-12 Options1
  3. Maximizing Post Secondary options4

529 Plans Outperform the Alternatives 3 examples

  1. A 529 investment account is better than a prepaid tuition plan.2
  2. Multigenerational wealth transfer through super funding the 529 account.1