Friday, November 20, 2009

529 Plans: College Savings

Estate Planning
There are many features of 529 college savings plans that are quite attractive from the perspective of estate planning. First, there are no income limits (unlike education IRAs). Saying this, that means that most everyone qualifies to hold an account for a 529 plan. The benefits and good news continues...

Tax Free Gifts
Going further into the features of 529 plans is the ability to reduce estate tax bills for the wealthy by utilizing the $13,000 in tax-free gift contributions. In the case of married couples, $26,000 can be contributed for each beneficiary in a single year without the consequences of federal gift taxes.

If you find yourself trying to get back to where you want to be, or to accelerate the reduction in the size of your estate, you are able to fund gifts (five years worth) by contributing up to $65,000 in the first year of a five-year period. This number is $130,000 for married couples. A contribution this size will go far in reducing your estate size and goes further in eliminating taxes on that estate.

Controlling 529 Accounts
The account holder always stays in control of the 529 plan's assets. Although the contributions are considered gifts, they are seen as outside the donor's estate, so the donor stays in control of that money - not the beneficiary.

Under the Uniform Gifts to Minors Act and the Uniform Transfer to Minors Act (UGMA/UTMA) the control over the assets is taken by the beneficiary as soon as they turn 16, 18, 21, or 25, depending on the rules of the state. In Section 529 plans, the beneficiary does not have control over the money during the lifetime of the donor. The donor can choose to reclaim the money for themselves at any time for any reason.

Despite all of the control over the account, it remains out of the taxable estate of the donor. These together are a few of the great benefits of a 529 plan. 529 plan.