| During the Holiday Season, we think a lot about Gifting, the gifting of presents to our loved ones and gifting to charities to benefit those less fortunate than ourselves. I would like you to consider another gifting opportunity, “The Gift of Education”.
I’m sure you have heard some of the statistics regarding the rising cost of education. The annual cost of undergraduate tuition, fees, room and board for 2007-2008 is $12,841 for an in-state public education and $27,677 for a private education.1 As a parent, of a child who is currently enrolled in college, I can personally attest to the high cost of education, but I couldn’t think of a better investment in my child’s future than a quality education.
With college costs on the rise, financing an education can be a challenge. I’m sure you don’t want your child or grandchild to major in student loans. Many Grandparents would like to help fund college educations by gifting money to their grandchildren. Gifting money into a 529 savings plan can offer benefits to both the Account Holder and the Beneficiary, including tax advantages, flexibility and control.
What is a 529 savings plan?
Created by section 529 of the Internal Revenue Code, a 529 savings plan is a qualified tuition program designed specifically to save for college. Tax-deferred growth on earnings and federal income tax-free distributions2 set 529 savings plans apart from other investment vehicles used to save for college.
How does a 529 savings plan work?
The person who is funding the plan, the Account Holder, opens an account. He or she, deposits money either in a lump sum or through contributions made over time, and selects investment options that suit their specific objectives and time frame. The Account Holder also designates a Beneficiary for whose qualified higher education expenses the funds will be used. The Account Holder maintains control of the account, choosing when to distribute funds and changing the Beneficiary as needed.3
What are the tax advantages of giving the gift of education?
Any investment growth is tax-deferred. A 529 savings plan has the flexibility of allowing high contribution amounts. The donor can also take advantage of accelerated gifting, allowing the Account Holder to make five years of contributions at one time – up to $60,000 per Beneficiary or $120,000 per Beneficiary if married filing jointly – without incurring a federal gift tax.4
What is the minimum contribution required to open a 529 savings plan?
This varies depending on the plan that you choose as your investment vehicle. There are plans that have a minimum initial contribution as low as $25 and some plans waive their minimum initial contribution requirement if you systematically invest $15 or more per portfolio in an automatic contribution plan.
In this world of excess that we live in, I would like to ask you to give some thought to whether little Johnny or Susie really needs another new toy, or possibly you could divide your gifting dollars between toys and investing in their future.
Please call me to help you design the perfect gift for the loved ones on your holiday gift list.
1 The College Board
2 State tax laws and treatment may vary. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax.
3 Account Holder can change the Beneficiary to another member of the current Beneficiary’s family at any time.
4 The donor must elect that the gift be treated as having occurred over a five-year period in order for it to qualify for the federal gift tax exclusion. If additional gifts are made to the same Beneficiary during this five-year period, a federal gift tax may apply. If the donor dies within this five-year period, a pro rata share will be included in the donor’s estate for federal estate tax purposes. State gift and estate tax laws may vary.
|