Section 529 and Coverdell Account Sunset Provisions - dummies

Section 529 and Coverdell Account Sunset Provisions

Part of 529 and Other College Savings Plans For Dummies Cheat Sheet

Although the existence of Section 529 plans and Coverdell Education Savings Accounts seems fairly established, many of the specific regulations governing them aren’t. The following list describes some of the provisions regarding these college savings plans set to revert to older law on January 1, 2011.

  • Income on distributions that is currently tax-exempt will become taxable income to the designated beneficiary.

  • Contributions to Coverdell accounts will revert to a maximum of $500 per year.

  • Distributions used to pay primary and secondary school educational expenses will no longer be qualified under Coverdell rules.

  • The list of available relatives of your current designated beneficiary will narrow, excluding first cousins, aunts, and uncles.

  • You will no longer be able to contribute in any given year to both a Coverdell Education Savings Account and a Section 529 plan. You’ll have to choose.

  • You won’t be able to superfund a Section 529 plan after December 31, 2010, without triggering a gift tax. On January 1, 2011, the law is set to return to a maximum annual contribution of no more than the current exclusion amount ($11,000) per donor per beneficiary.