529 Gift Tax

Paying for college can be the best gift you can give. However, it can also be the most expensive. It is no secret that college costs have increased at an alarming rate. According to the College Board report, "Trends in prices" College tuition has increased at twice the rate of inflation over the past 20 years (2001). This means that in another 18 years parents may provide for payment approximately $ 115,000 for total expenditures in a public college 4 years or about $ 250,000 in a private institution.

Here's what you can do now to help the rising costs of higher education in the future, it's called the 529 College Savings Plan. Named for a section of the Internal Revenue Code that allows a very favorable tax treatment, this state-sponsored college savings can be withdrawn completely tax free if the money is spent on eligible tuition fees.

Account owners can generally write-off up to $ 55,000 ($ 110,000 for married couples) per beneficiary once every five years without incurring gift tax federal government. For example, a couple of potentially rich can send their 4 grandchildren to college and immediately eliminate $ 440,000 (4 x $ 110,000) of their taxable property.

Besides tax incentives, there are some additional features that make 529s a logical choice for college funding. There is no age or income restrictions and contribution limits are high, some reaching $ 268,000. Account owners maintain control of assets. If for any reason, the owner must close the account, a 10% penalty will be assessed on income and the balance may be used at the discretion of the owner. In addition, 529s offer the possibility to change the beneficiary of the scheme. So if little Johnny decides to skip college account can be reassigned to his little sister. If she wins a scholarship, the money can even be withdrawn without penalty.

529 Each state plan has its own characteristics and advantages. All state plans are not created equal, and some state plans are better than others. (Be careful, some state plans do not offer diversified portfolio of options.) Fortunately, most state plans allow you to invest across national borders, which means that if you do not Plan your state has to offer, you can consult with other states and go with a plan you are comfortable. At present very few states offer tax breaks on their 529 plans, investment selection and management experience to carry more weight must when choosing a plan.

With college savings plans, you can select the investment options based on your goals and your time horizon. One of the most common investment choices is based on the current age of the beneficiary. investment allocation will change over time, so the child becomes more and more he / she gets to college age, the most prudent underlying investments become.

Understand the different trade-offs between different programs can be quite confusing. No particular type of account or investment option is suitable for all investors. Be sure to consult a knowledgeable investment advisor before investing.