For 2013 tax year only! Tax law changes every year, sometimes multiple times a year. With that said everything you read that has to do with taxes is time sensitive. Meaning whatever you read or hear about it will eventually be updated. With that said, read on...
There is a little known combination of the gift tax and also the Section 529 Plan that everybody should know, especially those who have either wealthy parents or wealthy grandparents. I hope all of you remember that a gift of up $14,000 can be given away without incurring a taxable event according to the IRS, right? Nod your head yes…
The govt will allow you to use up to 5 years at once, IF it is given to a Section 529 Plan that will be used for education. Since 2 parents or grandparents can each give a child $14,000, you’re talking about being able to start a child’s college education fund off with $140,000 (2 x 14,000 x 5). The catch is you cannot then give them any gifts for another 5 years. Here’s another situation, if you have 5 grandchildren, then you can give the same $140,000 to them, but together as a whole, not each. In other words you can’t give away $700,000 (5 x $140,000) at once.
The whole point of allowing this is to jump start a college savings plan. These funds will then grow tax free until they are needed for college. If your family is able to start your college fund off with $140k from the beginning. Watch out Harvard, here they come! By the time junior graduates from high school s/he will have amassed around $500,000 for school assuming you invest it wisely and can get a 7.2% return on average. Be nice to your grandparents kids!
This benefits the parents and grandparents because it now takes the $140,000 out of their taxable estate, thus paying less in death taxes. Keeping it in the family is a wonderful thing.
There is a little known combination of the gift tax and also the Section 529 Plan that everybody should know, especially those who have either wealthy parents or wealthy grandparents. I hope all of you remember that a gift of up $14,000 can be given away without incurring a taxable event according to the IRS, right? Nod your head yes…
The govt will allow you to use up to 5 years at once, IF it is given to a Section 529 Plan that will be used for education. Since 2 parents or grandparents can each give a child $14,000, you’re talking about being able to start a child’s college education fund off with $140,000 (2 x 14,000 x 5). The catch is you cannot then give them any gifts for another 5 years. Here’s another situation, if you have 5 grandchildren, then you can give the same $140,000 to them, but together as a whole, not each. In other words you can’t give away $700,000 (5 x $140,000) at once.
The whole point of allowing this is to jump start a college savings plan. These funds will then grow tax free until they are needed for college. If your family is able to start your college fund off with $140k from the beginning. Watch out Harvard, here they come! By the time junior graduates from high school s/he will have amassed around $500,000 for school assuming you invest it wisely and can get a 7.2% return on average. Be nice to your grandparents kids!
This benefits the parents and grandparents because it now takes the $140,000 out of their taxable estate, thus paying less in death taxes. Keeping it in the family is a wonderful thing.
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