Path2College 529 Plan

Frequently Asked Questions - Tax Considerations

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What are the federal and Georgia state tax advantages?
When you contribute to the Path2College 529 Plan, your account earnings have the opportunity to grow federal and Georgia state income tax-deferred until withdrawn. The earnings portion of any withdrawals used to pay for qualified higher education expenses will be free from federal and Georgia state income tax. This federal income tax-free treatment of qualified withdrawals and other federal tax benefits are permanently in place for 529 plans through the passage of the Pension Protection Act of 2006.

Is there a Georgia state income tax deduction?
Effective with the 2007 tax year, all Georgia taxpayers may now contribute and deduct up to $2,000 each year on behalf of any beneficiary regardless of their annual income. Georgia taxpayers are not required to itemize deductions to make this adjustment to income.  Please note that a transfer of funds from another state's 529 plan is not eligible for the Georgia income tax deduction. Georgia tax forms refer to the Path2College 529 Plan as "Georgia Higher Education Savings Plan" (GHESP); the Path2College 529 Plan is established by the GHESP.

Contributions made during the tax year, or before the following year's federal tax filing deadline are eligible for the deduction. State tax benefits offered in connection with the Path2College 529 Plan are available only to Georgia taxpayers. You should consult with a qualified tax advisor regarding the application of Georgia state tax benefits to your particular circumstances. Recapture provisions may apply. 

What are the federal estate and gift tax benefits?
Contributions to the Path2College 529 Plan may reduce the taxable value of your estate. Contributions to the Path2College 529 Plan, together with all other gifts from the account owner to the beneficiary, may qualify for an annual federal gift tax exclusion of $13,000 per donor, per beneficiary. If an account owner's contribution to a Path2College 529 Plan account for a beneficiary in a single year exceeds $13,000, the account owner may elect to treat up to $65,000 of the contributions, or $130,000 for joint filers, as having been made over a period of up to five years for federal gift tax exclusion. 

Are contributions to the Path2College 529 Plan federal tax deductible?
No, there is no federal tax deduction for contributions to a 529 college savings plan.

How are withdrawals for qualified higher education expenses taxed?
If you are taking a withdrawal to pay for qualified higher education expenses of the beneficiary, there will be no federal or Georgia state income tax. This federal income tax-free treatment of qualified withdrawals and other federal tax benefits are permanently in place for 529 plans through the passage of the Pension Protection Act of 2006. Use the Withdrawal Request form (PDF, 76KB).

How are withdrawals for non-qualified expenses taxed?
If funds are withdrawn for a purpose other than to pay for qualified higher education expenses for an eligible beneficiary (except if due to the beneficiary's death, disability or scholarship), there will be federal income tax on the earnings at the account owner's tax rate, as well as a 10% additional federal tax on the earnings portion of the distribution.

For Georgia state tax purposes, a non-qualified withdrawal will result in income taxation on the earnings portion of the distribution and, to the extent that the account owner has previously taken a state income tax deduction for contributions to the account, the contributions portion of the distribution ("recapture"). However, if an account owner has also made contributions to the account that were not deducted, the contributions portion of a non-qualified withdrawal does not have to be included in taxable income until the account owner has withdrawn all of the contributions that were not deducted. Use the Withdrawal Request form (PDF, 76KB).

What is the Generation Skipping Tax?
A transfer of funds or a change in beneficiary may be subject to the Generation Skipping Tax (GST) if the new beneficiary is two or more generations below the prior beneficiary. If the transfer is subject to GST, tax is imposed on the prior beneficiary. Account owners should consult their own tax advisors for guidance when considering a change of beneficiary or a transfer to another account.

What is the "sunset provision" and how does it affect the federal income tax treatment of 529 Plans?
Federal income tax-free treatment of qualified withdrawals and other federal tax benefits are permanently in place for 529 plans through the passage of the Pension Protection Act of 2006. The Sunset Provision is the provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) that stated that the law allowing federal income tax-free qualified withdrawals was set to expire December 31, 2010.  For more information, see the Disclosure Booklet and Participation Agreements (PDF, 1189KB).

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WE'RE HERE TO HELP
Have a question you don't see listed? Need clarification?

Call us toll-free at
1-877-424-4377

We're available 8:00 am to 8:00 pm Eastern Time.

Don't forget you can set up an Automatic Contribution Plan (PDF, 50KB) or use Payroll Deduction (PDF, 51KB) for your contributions (if offered by your employer).

PDF files require the free Adobe Acrobat Reader. Get it here.

Access our glossary for the meanings of terms used throughout this site.

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The Path2College 529 Plan is offered by the State of Georgia. TIAA-CREF Tuition Financing, Inc. (TFI) serves as Program Manager.

The tax information contained on the Path2College 529 Plan Web site is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. It was written to support the promotion of the products and services addressed in the Web site. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

The investment approaches described are not recommendations and do not take into consideration personal goals or preferences. After evaluating information you consider important in making an investment choice, the ultimate decision is up to you. It is a good idea to revisit your investment strategy periodically as your goals, personal financial situation, and market conditions change.

Consider the investment objectives, risks, charges and expenses before investing in the Path2College 529 Plan. Please call toll-free 1-877-424-4377 for a Disclosure Booklet containing this information. Read it carefully.

Before investing in a 529 plan, you should consider whether the state you or your designated beneficiary reside in or have taxable income in has a 529 plan that offers favorable state income tax or other benefits that are only available if you invest in that state's 529 plan.

The State of Georgia, its agencies, TIAA-CREF Tuition Financing, Inc., Teachers Insurance and Annuity Association of America and its affiliates do not insure any account or guarantee its principal or investment return except for TIAA-CREF Life Insurance Company's guarantee to the Board of the Georgia Higher Education Savings Plan under the funding agreement for the Guaranteed Option. Account value will fluctuate based upon a number of factors, including general market conditions.

The Path2College 529 Web site is for informational purposes only, and does not constitute an offer to sell or solicitation of an offer to buy any security that may be referenced on the site. Such offer or solicitation can be made only through the Disclosure Booklet

The Path2College 529 Web site contains links to other Web sites. Neither the Board of the Georgia Higher Education Savings Plan nor TIAA-CREF Tuition Financing, Inc. and its affiliates are responsible for the content of those other Web sites. The accuracy of information on those sites cannot be confirmed.

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