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Designate yourself as a 529 beneficiary

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The Section 529 plan is a popular way for parents and grandparents to provide college funding for the younger generation. But suppose you’re the one thinking about college for the first time or going back to school.

Strategy: Set up a 529 plan for yourself. There’s no age limit for most state-run plans. So you can reap the same benefits as your kids.

In fact, if you have a child who has graduated, you can rolover the leftover balance from his or her 529 account into an account under your own name.

Here’s the whole story: When you establish a 529 account, you designate the account beneficiary, who is typically a child or grandchild. State law restricts contribution amounts, but the limits are generally quite favorable, with the maximum often set at $300,000 or more. The contributions are then invested based on the offerings for the particular 529 plan. That’s usually enough to put the child or grandchild through four or more years of college.

The sooner you get started, the better. Generally, you don’t have to pay tax on the earnings inside the account in the years before your child enters college.

Icing on the cake: Distributions of funds in the account are completely tax free, if the money is used to pay qualified higher-education expenses like tuition and mandatory fees. If the child completes school, decides not to enter college or leaves early, you can roll over the unused plan balance tax free to a different beneficiary, like a younger child or grandchild.

Thus, a 529 plan can continue indefinitely. For instance, someone might initially establish a Section 529 account for a child and then switch the named beneficiary to a grandchild. Or, depending on the situation, the account might be set up for a child and then switched to a parent—even yourself.

Note that the transfer of assets to the account counts as a taxable gift, but these amounts can be sheltered from gift tax by the annual gift-tax exclusion ($14,000 in 2015).

Tip: The tax law allows you to make a one-time contribution equal to five times the annual exclusion with no gift-tax consequences.

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