April 7, 2014

Greetings! I trust that this will find you well and enjoying life.

Do you have a grandchild rapidly approaching college with no college savings? You can step in with a substantial gift by opening a 529 college savings plan. The nice thing about these plans is that you own the account and your college-bound student is merely the beneficiary. So if your grandchild decides to start a rock band or pursue acting in Hollywood instead of attending classes at your alma mater – you can pull the funds.

Normally you are entitled to gift only $14,000 per recipient per year, but 529 plans allow a special provision so you can make and claim five years’ worth of contributions at one time – up to $70,000 ($140,000 from a married couple). The gift must be reported as a series of five annual equal gifts and you may not make any additional annual exclusion gifts to the same beneficiary within the five-year period. Furthermore, funds you gift to a 529 plan are no longer considered part of your estate, so they avoid estate taxes when you as the account holder pass away.

One of the key advantages of a 529 plan is control. You can change the beneficiary at any time and although a 10 percent penalty will be imposed on any earnings withdrawn you can even use the money for non-college-related expenses. The original principal is yours penalty-free at any time although if you claimed a state tax deduction on your contribution, you’ll have to report withdrawn income and pay taxes on it.

Most states allow tax-deductible contributions, and earnings grow tax-deferred. Bear in mind that a plan’s proceeds distributed to a beneficiary but not used for college expenses will be taxed at the beneficiary’s rate, so he or she may pay far less in taxes than if the money is inherited as part of your taxable estate.

If you have questions about this information or I can help in any way with any financial issue don’t hesitate to call.

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