Section 529 college savings plans are a great way for anyone to both save for college and reduce his or her taxable estate without losing control over the account. You have the right to ask for the money back at any time (with earnings subject to both income taxes and a 10% federal penalty). No other vehicle provides this combination of control and estate reduction. Growth is tax free as are distributions if used to pay for qualified tuition and most related expenses, and for living expenses if the beneficiary is at least a half-time student. Further, you can retain the right to change beneficiaries. If your goal is to establish a 529 plan for a beneficiary, you may want to make a large contribution now of up to 5 years’ worth of annual exclusion gifts in one year. That amounts to $65,000 per child ($130,000 from a married couple) in 2012, and $70,000 per child ($140,000 from a married couple) in 2013. In this way, there is the potential of greater tax free earnings from the initial contribution, which will also be completely estate tax free once five years have passed. However, you must act now because Congress may act to curb, reduce, or make the requirements for these plans more restrictive.
For more information regarding estate planning, business law or tax controversy and compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.
In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.