529 Plan Tax Treatment

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Chapters in this video

  1. 0:00 After-tax contributions with no federal deduction
  2. 1:02 Tax-free qualified withdrawals and the jet ski trap
  3. 2:15 Earnings-only penalty on non-qualified withdrawals
  4. 3:50 Superfunding: five-year gift tax averaging
  5. 5:22 529 vs Coverdell ESA: income, age, and limits
  6. 6:26 Rapid-fire exam recap

What this video covers

  • Why 529 plan contributions use after-tax dollars with zero federal income tax deduction, and where state-level deductions may apply
  • The tax-deferred growth phase and what makes a qualified withdrawal completely tax-free at the federal level
  • How non-qualified withdrawals are split between tax-free return of contributions and taxed-plus-penalized earnings
  • Why the 10% federal penalty applies only to earnings, not the entire account balance
  • How 529 contributions are treated as completed gifts and how the annual gift tax exclusion works per beneficiary
  • What superfunding (five-year gift tax averaging) is, how to calculate the lump-sum limit, and the lockout restriction for additional gifts
  • The three critical distinctions between 529 plans and Coverdell ESAs: contribution limits, income limits, and age limits

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