MOST 529 Plan: a Tax Saving Way to Prepare for Your Child’s Future

Contributing to a MOST 529 college savings plan is a great way to save for your child’s future.  The 529 plan is a type of investment account, typically state sponsored, that is used as a savings for higher-education.  Eligible education institutions include 2 and 4-year colleges, post-secondary trade and vocational schools, and postgraduate programs.  The money can be used for most education expenses including tuition, supplies, books, equipment, and certain room and board fees.  Benefits of using a 529 plan are the potential tax savings, such as qualified withdrawals being tax-free for federal and state, and having earnings that grow deferred from federal and state income taxes.

Missouri is one of the many states that participate in the program.  The MOST 529 plan allows taxpayers to save for both higher-education and on their taxes, as there is a limit on the state tax deduction for the plan.

Eligibility

Almost anyone can participate in the MOST 529 college savings plan; there are no income or age restrictions.  The taxpayer must be a U.S. citizen or resident alien with a valid Social Security number or other taxpayer identification number.  For a taxpayer to be eligible to take advantage of the state tax deduction, they are required to be a Missouri resident.  It is also possible for different taxpayers to open separate accounts for the same beneficiary.  For example, both a parent and a grandparent can each open a separate account for the same beneficiary.  They can also open separate accounts for other beneficiaries as well. The beneficiary is solely the person the taxpayer is opening the account for, and they can be a child, grandchild, yourself, or a friend. All beneficiaries must be a U.S. citizen or resident alien with a valid Social Security number or other taxpayer identification number.

Contributions

Taxpayers can contribute up to $14,000 per year if filing under the single status. If filing under the married filing jointly status, they can contribute up to $28,000 per year. Taxpayers can contribute up to $70,000 ($140,000 if married filing jointly) in a single year per beneficiary and then treat it as though you contributed that amount over a five year period.  It’s important to note that you will not be able to make additional gifts to the same beneficiary during that five year time period without dipping into the lifetime gift tax exclusion.

Deductions

If the taxpayer is a resident of Missouri and is also the account owner, they can deduct up to $8,000 of their MOST 529 plan contributions when their state income tax return is filed, if filing under the single status.  If the taxpayer is filing under the married filing jointly status, they can deduct up to $16,000 of their MOST 529 plan contributions.  Please keep in mind that the tax benefits are not the same for every state.

Rollovers and Withdrawals

Money can be rolled over tax-free from another 529 plan to the MOST 529 plan for the same beneficiary as often as once every year. If the beneficiary decides that they do not want to continue their education, there are several options for the taxpayer.  The 529 plan can stay open and the taxpayer can continue to invest in case the beneficiary decides to attend school at a later time.  There is no age limit on using the money that has been contributed.  Also, the beneficiary can be changed to another eligible family member.   Another option would be to withdraw the money and use it for other nonqualified expenses, which would result in a 10% penalty tax on the earnings.  The penalty is for federal and state income taxes as well.

For more information about MOST 529 college savings plans, please contact an Anders advisor.