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Wrap a 529 College Savings Plan as a Holiday Gift

Posted on: December 19th, 2014
gifts for collegeThe average tuition at a private university in the United States was $30,094 for the 2013-2014 school year, according to the College Board. The amount will be considerably higher when today’s children reach their college years. Instead of giving traditional holiday gifts for kids, set up or contribute to a child’s 529 College Savings Plan.

529 plans provide tax-free growth of contributions. When the time comes for the student to tap into the funds, allowable withdrawals may be made completely free of tax. College students spend an average $1,100 on books annually. One of the many tax-free deductions permitted from 529 plans is for books.

529 plans are not just beneficial for the recipient. Contributors have incentives as well. Gifts made to 529 plans can be included as part of a taxpayer’s $14,000 annual gift exclusion ($28,000 for married persons filing jointly). The greater attraction: 529 donors are currently allowed to add up to $70,000 in a single lump sum and enjoy five years of annual gift tax exclusions at that one time.  In addition, amounts held in a 529 are not included in the taxable estate of the contributor, and are at least partially exempt from creditors’ claims, depending on applicable state law.

If the holiday season has stretched your time too thin and 529 plan contributions were not made, create an advance plan that involves annual contributions for future holidays, birthdays, and special life events like high school graduation. Children and grandchildren will benefit from the plan when they enter college, and contributors can transfer wealth knowing exactly how the next generation will use the funds. 
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