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Stockpile Section 529 funds for the future

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in Small Business Tax,Small Business Tax Deduction Strategies

The amount you transfer to a Section 529 plan for college savings on behalf of a beneficiary qualifies for the annual gift-tax exclusion. Under the exclusion, you can give away up to $13,000 a year—or $26,000 for joint gifts made by a married couple—to an account for the beneficiary without paying any gift tax.

Strategy: Front-load your contributions to a Section 529 plan. The tax law allows you to give the equivalent of five years’ worth of contributions up front with no gift-tax consequences. The gift is treated as if it were spread out over the five-year period.

For instance, you and your spouse might together contribute the maximum $130,000 (5 x $26,000) on behalf of a grandchild this year without paying any gift tax. If you have five grandchildren entering college soon, together you can contribute $130,000 to their Section 529 plans, completely free of any gift-tax consequences.

Tip: Any excess above the annual gift-tax exclusion may be sheltered by the $1 million gift-tax exemption.

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