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Not available in other 529 plans
Several benefits are available to you only if the section 529 college savings plan you use is a Pennsylvania plan – either the PA 529 GSP or PA 529 IP. These exclusive benefits include:
- Pennsylvania state financial aid protection. Assets held in a PA 529 Account – no matter how large—are not counted in determining Pennsylvania state financial aid. Assets of a parent or student held in any other 529 plan are fully counted.
- Pennsylvania inheritance tax exclusion. Assets held in a PA 529 Account are not included in a deceased’s assets for Pennsylvania inheritance tax purpose. Assets held in any other 529 plan are fully counted – regardless of the size of the deceased’s assets. The inheritance tax rate varies depending on the relationship between the deceased and the heir; for children or grandchildren it is 4.5% of the entire value of the asset – not just the growth.
- Protection from creditors. In Pennsylvania state proceedings, assets held in a PA 529 Account are protected from creditors of the Account Owner or Beneficiary. Assets in an out-of-state 529 plan have no such protection.
Also unique to Pennsylvania:
- SAGE Tuition Rewards. Savings in a PA 529 Account can earn SAGE tuition rewards, which guaranteed the student tuition discounts at over 295 private colleges nationwide with 50 in Pennsylvania. Discounts earned are normally equal to 1.25% times the value of your account (Tuition Inflation Value for the GSP) quarterly. Through June 30, 2013, the discount is 2.5% of the value of your account.Each participating college sets the maximum discount that it will honor – typically one year of tuition spread over four years. As of December 2012, this ranges from $8,500 to $42,420.
Thanks to an array of Pennsylvania and federal tax provisions, you can enjoy the following benefits when you save through a Pennsylvania 529 College Savings account:
State tax deduction — Pennsylvania taxpayers can deduct contributions to the GSP from their Pennsylvania taxable income up to $14,000 per Beneficiary per year. For married couples, contributions up to $28,000 per Beneficiary per year are deductible, provided each spouse has taxable income of at least $14,000.
Tax-deferred growth — Earnings are not subject to yearly taxation for either federal or Pennsylvania income taxes while they remain in the account.
Tax-free withdrawals — When used for qualified expenses, the growth in your account is not subject to federal or Pennsylvania income taxes.*
Gift tax exclusion — Contributions are included in the annual $14,000 exclusion from federal gift taxes for gifts made to any one person. But, unique to 529 plans, a contributor can give up to five times that amount ($70,000) in one year and treat that contribution as if it were made over five years for gift-tax purposes. So, large contributions to the GSP can be made without incurring gift taxes.**
State inheritance tax exemption — The entire value of a Pennsylvania 529 College Savings account is exempt from Pennsylvania inheritance tax. Depending on the relationship between the deceased account owner and the heirs, this can be a savings of up to 15% of the value of the account.
With a Pennsylvania 529 College Savings account, families can save for college in a way that meets nearly every need and budget.
Put in as little or as much money as you want — You may open an account with as little as $25 and make minimum subsequent contributions of $25 or more whenever you want. Make saving even easier by setting up automatic payroll deduction or deductions from your bank account. The maximum contribution for all Pennsylvania 529 accounts for the same beneficiary, regardless of who owns the accounts, is $368,600. Once your accrued Pennsylvania account balance reaches this limit, no additional contributions are allowed.
Flexibility to use your account at almost all colleges and many career schools — Accountant, hairdresser, or rocket scientist? It doesn’t make a difference. Nearly all colleges, universities, community colleges, and law, medical, or business schools qualify. Many career or technical schools and colleges abroad are eligible, as well. For a list of eligible schools, see www.fafsa.ed.gov.
Use your Pennsylvania 529 College Savings account to pay for tuition, certain room and board costs, and required books and supplies — Qualified educational expenses include all these items as well as required equipment, mandatory fees, and special needs services.
No income restrictions — It doesn’t matter what your income is. Any U.S. legal resident 18 and older can open a PA 529 Investment Plan. The PA 529 Guaranteed Savings Plan is exclusively for Pennsylvanians, so either the account owner or the beneficiary must be a resident of the Commonwealth when the account is opened.
Anyone can contribute — Parents, grandparents, aunts, uncles, and family friends can all help cover the cost of your student’s college education.
It’s affordable — PA 529 Guaranteed Savings Plan: There is a one-time enrollment fee of $50 ($25 fee for online enrollment) for the PA 529 Guaranteed Savings Plan (additional discounts may be available through your employer or your child’s school. And, the enrollment fee is waived if an account is opened within six months of a child’s birth or adoption). An account maintenance fee of 0.1225% is deducted quarterly (approximately 0.49% annually), but may be paid separately to maintain account balances and PA 529 Guaranteed Savings Plan Credits.
PA 529 Investment Plan: There is no enrollment fee for the PA 529 Investment Plan, and the annual asset-based fees charged for all Investment Options in the Plan were reduced effective July 1, 2010. Almost all current and future account owners will see a reduction of nearly 25% or more. Depending on which Investment Option is chosen, the new fees will range from 0.49% (49 basis points) to 0.64% (64 basis points) down from 0.70% (0.75% for the Social Index Portfolio).
* The availability of tax or other benefits may be contingent on meeting other requirements. A withdrawal or a portion of a withdrawal not used to pay for qualified expenses may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.
** In the event the donor does not survive the five-year period, a prorated amount will revert to the donor's taxable estate.
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