Please remember there's always the potential of losing money when you invest in securities. Before you invest in a Section 529 plan, request the plan's official statement from your Financial Solutions Advisor and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which you should consider carefully before investing. You should also consider whether your home state or your beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's 529 plan. Section 529 plans are not guaranteed by any state or federal agency.
Any tax statements contained herein were not intended or written to be used, and cannot be used for the purpose of avoiding U.S. federal, state or local tax penalties. Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions. 1
To be eligible for favorable tax treatment afforded to any earnings portion of withdrawals from Section 529 accounts, such withdrawals must be used for "qualified higher education expenses," as defined in the Internal Revenue Code. Any earnings withdrawn that are not used for such expenses are subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes. 2
Section 529 plans are established by various states and are offered to residents of all states. Depending on the laws of the customer's home state, favorable tax treatment for investing in a Section 529 plan may be limited to investments made in a Section 529 plan offered by the customer's home state. Neither Merrill Lynch, Pierce, Fenner & Smith Incorporated nor any of its subsidiaries are tax or legal advisors. We suggest you consult your personal tax or legal advisor before making tax or legal-related investment decisions. 3
For 2015, individuals can gift up to $70,000 ($140,000 for married couples filing jointly) per beneficiary in a single year without incurring gift tax. Contributions between $14,000 and $70,000 ($28,000 and $140,000 for married couples filing jointly) made in one year can be prorated over a five-year period without subjecting you to gift tax or reducing your federal unified estate and gift tax credit. If you contribute less than the $70,000 ($140,000 for married couples filing jointly) maximum, additional contributions can be made without you being subject to federal gift tax, up to a prorated level of $14,000 ($28,000 for married couples filing jointly) per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given beneficiary in the year of contribution. For contributions between $14,000 and $70,000 ($28,000 and $140,000 for married couples filing jointly) made in one year, if the account owner dies before the end of the five-year period, a prorated portion of the contribution may be included in his or her estate for estate tax purposes. 4
Financial aid rules may change, and the rules in effect at the time the beneficiary applies may be different. For more complete information, visit the Department of Education Web site at www.ed.gov
The account owner can change the beneficiary to another member of the family of the original beneficiary, without penalty. Please refer to the Internal Revenue Code definition of "member of the family." If assets are contributed from an UGMA/UTMA account, the custodian may not change the designated minor, except as permitted by applicable law. 6
Institutions must be eligible to participate in federal financial aid programs. Some foreign institutions are also eligible. 7
The beneficiary must be attending an accredited institution at least half time for room and board to be considered an eligible expense. 8
The 10% additional tax does not apply to withdrawals as a result of the designated beneficiary receiving a scholarship or the designated beneficiary's attendance at a U.S. military academy provided the withdrawals do not exceed the amount of the scholarship or value of attendance at the academy. The 10% additional tax also does not apply as a result of withdrawals made due to the death or disability of the designated beneficiary. 9
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