Best Estate Planning Attorneys in Cupertino, CA

What Is the California 529 Plan? The 529 plan is a state-sponsored investment tool through which you can invest funds that will one day go towards future tuition, fees, books, equipment, supplies, and related expenses. The California 529 lets you contribute up to a particular amount every year in each 529 account without affecting the size of your lifetime gift tax exclusion or requiring you to pay federal "gift" taxes. The investment growth from a 529 is tax-free (state and federal). You cannot contribute any more money to the 529 once the account balance hits $529,000, although the balance can still go up due to the growth of investments. The beneficiary is usually a child or grandchild, but can technically be anyone, even you. They don't even have to be part of your family. When it comes time for the beneficiary to go to school, you can withdraw a maximum of $10,000 for each of them annually to pay for qualified expenses without the earnings portion incurring tax liability. If withdrawals go towards expenses that are not qualified, the earnings portion will be considered income and taxed. Additionally, you may have to pay a further 10% in federal tax and 2.5% in state tax. The school can be public or private — or even religious — and does not necessarily have to be located in California. Apprenticeship programs also qualify. Tax laws have recently been amended to include more qualified expenses under the California 529.