Section 529 College Savings plans allows parents or grandparents to contribute up to $65,000 ($130,000 per couple) to a beneficiary’s account. The account's income is allowed to grow on a tax free basis and are exempt from estate taxes. You can also change the beneficiary or reclaim the account if necessary. Taxes and a 10% penalty apply on income withdrawn and not used for qualifying education expenses. These features make 529 plans an attractive way to fund college expenses and an effective estate-planning tool. If you contribute more that $13,000 in a year a gift tax return election is required to use up to 5 years of annual gift exclusions ($13,000 x 5 = $65,000).
