|
Throughout the month of May we will look at the various options available for funding the increasing costs of education.
Some investment accounts include 529 College Savings Plans, Prepaid Tuition Plans, Coverdell Education Savings Accounts, Savings Bonds, Custodial Accounts (UGMA/UTMA), Taxable Investments and regular bank accounts. Also, there are numerous loan opportunities, including Stafford Loans, Plus Loans and Federal Perkins Loans, as well as Private Loan Programs. Other Loan Sources include Home Equity, Retirement Accounts and Life insurance, but these should be considered after all Scholarship and Grant opportunities are exhausted.
Annual Gift Exclusion is $13,000 ($26,000 for Joint) in 2012
The annual gift exclusion is $13,000 per individual for 2012. This means that a married couple may gift up to $26,000 in 2012 to anyone they like without having to pay gift tax. Often these gifts go to children or other beneficiaries and are done by using a 529 Plan or Custodial Account (Uniform Gift Minor Act, or UGMA and Uniform Transfer to Minor Acts, or UTMA). Generally gifts exceeding the annual exclusion must be reported to the IRS and could be subject to gift tax.
“Power Fund” your 529 Plan via a 5-Year Election:
With the annual gift exclusion set at $13,000 per year, you can contribute as much as $130,000 (married joint filers) to a 529 plan for each child in 2012 without giving rise to a taxable gift. The 529 plan allows for 5 years of forward gifting meaning a couple can contribute $130,000 to a child or grandchild today, reduce their taxable estate and transfer the growth of assets to the kids. What is the downside? If not used for education within 30 years, assets withdrawn from a 529 plan are subject to tax and a 10- percent federal penalty.
Using the 5 year election in 2012 contributions, a married couple can transfer $130,000 out of their estates and into a tax-deferred (and potentially tax-free) investment for college.
The five-year election, unique to 529 plans, allows you to treat your contributions to a 529 plan as being made ratably over a five-year period for gift-tax purposes. Congress came up with this idea in 1997, recognizing that some families would have the desire and ability to save large amounts in 529 plans, but that gift-tax consequences might derail or delay their funding intentions.
Help your kids land a college scholarship:
Beyond encouraging your children to check the bulletin board at their school counselor’s office, try signing on to scholarship search engines on the Web, such as Fastweb.com and Scholarships.com. Avoid search engines that charge a fee – they might be scams. Aim for awards that match your child’s grades, special talents and community service. Improve your odds by going after grants offered by area businesses or chapters of civic groups such as the Rotary Club. It’s great to be a big fish in a small pond. If your child’s school does the choosing, tell your child to speak up. Above all, be sure to turn in the application by the due date.
Contact Jon or Vince if you have additional questions or if you would like is to put together a proposal uniquely targeted to your families educational needs.
816-285-9000
|
 |
