The state of Michigan has a very good plan for investing for college education through the 529 plan. The Michigan 529 plan is considered efficient both as an instate plan as well as an outstate plan. The plan has been made in accordance with the federal guidelines by the Michigan Department of Treasury and is known as the Michigan Education Savings Program.
The following are some of the main features of the Michigan 529 plan. These are actually the benefits that the plan has to offer:-
1. Growth of assets with tax-deferment
The Michigan 529 plan is a good option for people who are looking at investing their assets without attracting taxes. All the money that is contributed to the Michigan 529 plan remains free of income tax until it is withdrawn from the program.
2. Exclusion of both federal as well as state tax on qualified higher education expenses
A clear advantage of the Michigan 529 plan is that it allows the contributor to remove money from the plan to pay for the higher educational expenses of the beneficiary, known as qualified withdrawals, without any federal as well as state tax being applied on them. The Pension Act of 2006 has confirmed that all the qualified withdrawals on the 529 plans can be made without levying taxes.
3. Tax advantaged plan
The state of Michigan offers deduction in the state income tax for people who are participating in the 529 state plan. However, there is a rule here that contributors to the plan must know. If a person has made a particular contribution to a plan, it is not necessary that the whole amount will become tax-exempted. Any qualified withdrawals made from that account within that year are deducted from the total amount that is contributed. The different is deductible. Again this difference should not be higher than 5,000 for a single person or 10,000 for a married couple filing jointly. If the amount contributed in that year is higher than this, then the different will not be tax-deductible. Also, only the contributions made on Michigan 529 state plans are acceptable for this tax advantage. Plans that citizens of Michigan make for other US states will still attract the taxes in the normal manner, and cannot be shown for deductions.
4. Beneficial for real estate within Michigan and gift tax
All the contributions made by the contributor to the beneficiary can be put up for exclusion of gift tax. There is a limit here of $12,000 per contributor, per beneficiary, per year. But even higher amounts can be contributed, and exclusion can be claimed for the future years. In that way, if someone wishes to contribute $60,000, it can be taken as five year’s gifts in aggregation, and gift taxes for those five years can be written off. However, no further gifts must be made within this period.