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Tax-Free College Savings
A Great Option |
For many young couples, saving for education
is second only to saving for retirement as a financial priority.
Unfortunately, the cost of raising children coupled
with the fact that college costs have risen faster than median income
levels has made it difficult for most parents to provide adequate
resources for their children's college education.
While tax-advantaged savings plans designed for
educational expenses have been available for some time, recent changes
to the tax code make one option too good to miss, especially for
grandparents. This option is the 529 College Savings Plan.
Highlights of the plan:
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Effective January 1, 2002, after-tax
contributions to 529 plans grow tax-free, and distributions
are completely free of federal income tax when used for higher
education. |
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Contributions are considered
"completed gifts"and are thus excluded from a grandparent's
estate. |
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Under 529 plans, you can take advantage of an accelerated
gift-tax provision which allows up to five years of gifting
to be contributed in any one year for each beneficiary without
any gift tax consequences ($50,000 for a single person, $100,000
for a married couple).*
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All or part of any gift can
be rescinded with a 10% penalty on the earnings portion and
with earnings taxed as ordinary income at the contributor's
rate.** |
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Distributions can be used at any U.S. accredited higher learning
institution, including colleges, graduate schools, and technical
institutions for anything from tuition, fees, books, supplies,
and equipment required for enrollment. Room and board may
also be included for students attending at least half-time.
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There are no income limits,
so anyone can participate. |
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The 529 plans also allow easy
rollover from one beneficiary to another with no limit on the
number of changes and no penalties for changing. |
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Unlike custodial accounts, the
donor remains in control of all funds for the life of the plan,
even after the beneficiary is of legal age. |
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Beneficiaries can be changed
to benefit any member of the family, including first cousins. |
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Many states actually offer some
form of state income tax deduction or benefit for residents
contributing to their college savings plan. |
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Call the Assemblies of God Foundation
for advice in establishing a plan for your grandchildren that
can be used for them to attend an Assemblies of God or any other
college, university, institute, or technical school. |
Randall K. Barton, Former President/CEO AG Financial
Solutions
AG Financial Solutions,
Foundation Trust and Investment Services
1661 N. Boonville Avenue., Suite D
Springfield, MO 65803
Phone: 417-865-4880
Fax: 417-865-5141
* If the donor dies before the five-year period
has expired, then the prorated portion will be included in the gross
estate of the donor.
** In Michigan, you will be penalized on the
entire withdrawal.
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