Until December 31, 2021 you can enter to win a $500 contribution to the Michigan Education Savings Plan (MESP) (529) for the recipient of your choice. Find out more information and enter HERE.
Below we answer these questions:
According to US News, the average tuition for the 2021-2022 school year is:
And most students will see substantial room and board costs that add to this tuition total.
With these price tags, it’s no wonder parents and families worry that their loved ones will face crippling school loan debt.
That’s why we often recommend 529 plans to our clients.
A 529 is an investment account that offers significant tax savings when used to pay for qualified education expenses for a designated beneficiary. Originally limited to higher education costs, it was expanded to cover K-12 education in 2017 and apprenticeship programs in 2019.
What is the Michigan Education Savings Plan?
Education savings plans were first established in 1986; tax-free status was added a decade later.
The Michigan Education Savings Plan (MESP), specifically, is Michigan’s iteration—as each state creates their own programs and rules.
Who should open a 529 plan?
Anyone can open an MESP 529, but they’re typically established by parents or grandparents, on behalf of a child or grandchild.
The program works much like a Roth IRA by investing your after-tax contributions in stock and bond mutual funds. Your money grows on a tax-deferred basis and can be withdrawn tax-free if the money is used to pay for qualified education expenses.
Note that anyone can provide a gift to a 529, including family, friends, and other loved ones. Unlike other educational savings accounts the 529 has no income limitations for the contributor.
What counts as qualified education expenses?
Funds can be used at any accredited university, college, or vocational school—both nationwide and abroad. Essentially, any institution with a student aid program qualifies.
Qualified education expenses include:
How does the tax deferred feature of 529 work in practice?
The tax deferral feature of 529s allows gains on the investment account, interest, dividends, and capital gains to be exempt from federal and state income taxes, provided the money is used for any of the above qualified educational expenses.
Is there a tax deduction for 529 contributions?
A 529 isn’t tax deductible for federal income tax purposes. But the MESP 529 allows contributions to be deductible up to $5,000 per year for a single income tax return filer and $10,000 per year for joint filers in the state of Michigan.
Is there a maximum contribution you can make to a 529?
The state of Michigan has a maximum aggregate limit of $500,000.00 per beneficiary. Please note contributions in excess of the annual gift tax exclusion ($15,000 in 2021) will count against your lifetime estate and gift tax exemption ($11.7 million in 2021)—unless you take advantage of the accelerated gifting provision.
The 529 savings plan accelerated gifting provision is a unique feature that allows you to accelerate five years of gifting at one time. The net result is that each grandparent could give up to $75,000 in one lump sum to each grandchild, without lowering the lifetime estate and gift tax exemption. To take advantage of this provision, consult with your tax advisor as the donor will need to complete IRS Form 709 when filing federal taxes.
What if your child or grandchild doesn’t use the full amount?
The future may be uncertain. Your child or grandchild may receive amazing scholarships, or not attend college at all!
If the 529 is not used in full, you have a few options:
Enter to Win!
Until December 31, 2021 you can enter to win a $500 contribution to the Michigan Education Savings Plan for the recipient of your choice. Find out more information and enter HERE.