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By investing in a 529 College Savings Plan, you can save for your child's or grandchild's education, and, at the same time, reduce your federal taxable estate.
The current advantages include:
Federally tax-free earnings on your account and tax free withdrawals of earnings;
The ability to donate up to $55,000.00 per contributor in a single year for EACH beneficiary without triggering a federal gift tax;
Maintaining complete control of the account, permanently (unlike UGMA accounts);
The ability to harness professional investment management services at low enrollment minimums (many plans only require you to open an account for a minimum of $500.00);
Your choice of schools - providing the institution in consideration is qualifies (most do). These include vocational schools, most U.S. universities and professional schools;
The option of moving the beneficiary designations from one child, grandchild, niece, nephew, etc. to another - without income tax consequences; and
NO requirement to use the assets prior to age 30, as is the case with
the Coverdell
Educational IRA's.
More: Should you, as the 'donor(s)', elect at some point to go 'back to school' - regardless of age - you could use the benefits for yourself or spouse!
Currently, investors can contribute up to $55,000.00 one time, per beneficiary, or $11,000.00 over 5 years, per beneficiary.
Example: Let's say we have one beneficiary - grandchild Tommy - Tommy has two (2) sets of grandparents. The maximum that all four (4) could contribute would be $55,00.00 each, or a total of $220,000 for a given five year period. After 5 years, they could place another $55,000 each FBO of Tommy.
Portability Explanation
As your read above, you have the option of moving the beneficiary designation from one person to another.
EX. Let's say, you made $55,000 deposits for both grandson and granddaughter - the years pass and you realize the grandson has no need for his - you then change beneficiary desiginations to grandaughter.
This would constitute a gift under estate tax rules. However, there may or may not be gift tax consequences because it depends on the year you actually changed the beneficiary designation.
If, for example, you changed the beneficiary designation within the first 5 years, there could be gift tax consequences. If you did so after the 5th year, there would be none.
However, should this situation arise (less than or greater than 5 years), you could slide partial amounts, as well. Since estate and gift tax rules seem to be changed every 2-3 years, who knows what the estate tax gift rules will be when it comes under consideration for you. THEREFORE, you and your advisor would simply need to deal with the options available at that time.
Please keep in mind that 529 'gifts' are not in addition to regular money gifts that you can claim as part of your $11,000 annual exclusion per beneficiary. Call us at 1-800-480-7526 for details on how to minimize or avoid possible gift tax consequences.
Action
To Take If you would like to learn more about 529 College Savings Plans, please click HERE.
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Copyright © 1998
Fielder Financial Management, LTD.
All Rights Reserved.
Securities are offered through Girard Securities, Inc.
member FINRA, SIPC.
Mark R. Fielder, Registered Principal. CA. Insurance Lic. # 0690576.
