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How much can I invest in a 529 plan?

The amount you can contribute to a 529 plan depends on the plan's lifetime contribution limit, which is set by individual states. Most states have a lifetime cap of $350,000 or more. When the value of your account reaches the limit, no more contributions can be made to the account. States typically increase their limit every few years. A plan's lifetime contribution limit is per beneficiary.

How often can you invest? Plans typically let you contribute as often as you like. A common way to contribute to a 529 plan is to set up regular monthly contributions through automatic debits from your checking or savings account. This is a convenient and reliable way to save for your child's education. It also has another benefit: investing consistently every month (also known as dollar cost averaging) can help you ride out the ups and downs of the market because you buy more shares when prices are low and fewer shares when prices are high. (Note, though, that dollar cost averaging does not ensure a profit or protect against a loss in a declining market; you should consider your ability to invest continuously when the market is down.)

All contributions to a 529 plan are considered present interest gifts and qualify for the annual federal gift tax exclusion. This means that in 2021 you can contribute up to $15,000 per year, per beneficiary to a 529 plan without incurring federal gift tax. So, if you contribute $20,000 to your child's 529 plan in a given year, for example, the additional $5,000 would be a taxable gift and you'd report it on a federal gift tax return. (However, just because it's a taxable gift doesn't mean you'll necessarily pay gift tax; you must use up your lifetime applicable exclusion amount before you'd be owe an out-of-pocket payment for gift tax.)

An alternative to contributing smaller amounts is to contribute a lump sum, a strategy that might appeal particularly to grandparents who want to help fund their grandchild's college education. Under special rules unique to 529 plans, you can make a lump-sum gift to a 529 plan of up to five times the annual gift tax exclusion amount and avoid federal gift tax if you make a special election on your tax return to treat the gift as if it were made evenly over a five-year period and you don't make any other gifts to that beneficiary over the five years. In 2021, you can gift a lump sum to a 529 plan of up to $75,000 ($15,000 x 5) and avoid federal gift tax. Married couples can gift up to $150,000 ($75,000 per person).

Some 529 plans may have contribution minimums. This could mean you have to make a minimum deposit to open an account or that each of your contributions has to be at least a certain amount. Consult the plan administrator of any 529 plan you are considering for details regarding contribution minimums, maximums, and other restrictions imposed by the plan.

Finally, keep in mind that contributions to a 529 plan must be made in cash (e.g., check or transfer from bank account), so you cannot contribute stocks, bonds, mutual funds, or any other property. If you have money tied up in such investments and want to contribute these assets to a 529 account, you must liquidate (sell) the investments first.

Note: Before investing in a 529 plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options, underlying investments, and investment company, can be obtained by contacting your financial professional. You should read these materials carefully before investing. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. Investment earnings accumulate on a tax-deferred basis, and withdrawals are tax-free as long as they are used for qualified education expenses. For withdrawals not used for qualified education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% federal income tax penalty. The tax implications of a 529 plan should be discussed with your legal and/or tax professionals because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers. These other state benefits may include financial aid, scholarship funds, and protection from creditors.

There are no warranties implied.

White Aspen Capital is a registered investment adviser located in Los Angeles, California. White Aspen Capital may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Whiteaspencapital.com is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of White Aspen Capital web site on the Internet should not be construed by any consumer and/or prospective client as White Aspen Capital solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by White Aspen Capital with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of White Aspen Capital, please contact the state securities regulators for those states in which White Aspen Capital maintains a registration filing. A copy of White Aspen Capital’s current written disclosure statement discussing White Aspen Capital’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from White Aspen Capital upon written request.

This newsletter and information are provided for guidance and information purposes only. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy. This website and information are not intended to provide investment, tax, or legal advice.

White Aspen Capital 350 S. Grand Ave. Suite 1800 Los Angeles, CA 90071 310-498-0620 info@whiteaspencapital.com www.whiteaspencapital.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021

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