Probate & Trust Law Section Conference Manual ... - Minnesota CLE

university, or (iii) making reasonable progress towards completing
a course of vocational, trade or technical training approved by the
Trustee; or (iv) in the military; or
(c)
if such beneficiary is twenty-five years or older and if prior to
attaining the age of twenty-five years such beneficiary
(i) graduated from an accredited college or university, or
(ii) honorably completed at least four years of military service, or
(iii) completed a course of vocational, trade or technical training
approved by the Trustee and has been employed full time and has
been self-supporting for at least five years.
VI.
General Rules for 529 Accounts
A. 529 Savings Accounts in General. A donor can establish a section 529 savings
account under the qualified tuition program (“QTP”) of a particular state for a
particular beneficiary and make contributions to the section 529 account.
Depending upon the QTP, this may be done directly or through a broker or
financial advisor. In most states the donor may select among different investment
options. In some states the donor may receive a state income tax deduction. The
section 529 account is invested by the state or an investment manager selected by
the state, generally in a portfolio of mutual fund investments. The earnings on the
section 529 account are not subject to income tax while held in the section 529
account. The account owner of the section 529 account, usually the donor, can
generally:
approve or disapprove distributions to the beneficiary;
change investment options to the extent permitted;
rollover the account to another QTP;
change the beneficiary; or
withdraw the funds and get them back.
The earnings on the account are not subject to federal income tax when qualified
distributions are made from the section 529 account. The earnings portion of a
qualified distribution is subject to state income tax in some states and exempt
from state income tax in other states. A ten percent additional federal tax is
imposed on the earnings portion of a distribution not used for qualified higher
education expenses. Code § 529(c)(6); Code § 530(d)(4).
B. Statutory and Regulatory Background
1. Statutes. Section 529 was added to the Code by the Small Business Job
Protection Act of 1996, and was later modified and expanded by the
Taxpayer Relief Act of 1997, the 1998 Internal Revenue Service
Restructuring and Reform Act and the Economic Growth and Tax Relief
Reconciliation Act of 2001 (the “2001 Act”).
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