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Giving the gift of education

Jeffrey Apps and Tracy Tutag

Are you tired of shopping for your children’s holiday gifts? Do your children or grandchildren have plenty of video games? If you answered yes to either question you might consider contributing to a child’s education fund. The new tax law has made it possible to give more to children and grandchildren, both now and in the future, without triggering tax liabilities. One particularly good way to provide gifts to children is to help fund a college savings Section 529 Plan, named after section 529 of the Internal Revenue Code. Benefits The money you invest in a Section 529 Plan grows tax-free for as long as it stays in the plan. Since 2002, withdrawals for qualified educational expenses have been free of Federal tax*. In addition to the Federal tax breaks, many states, including Colorado, offer tax advantages to in-state residents, such as a state tax deduction on your contribution. The contribution limits have increased and the amount you can put in to the plans is substantial – $250,000 per beneficiary in most states. These plans are very easy to set up, are professionally administered and often offer a choice of investment plans. The owner has full control over the account and can choose investment options within the plan and change them as the child ages. The owner can also withdraw the money if necessary, although there will be taxes and penalties owed if a withdrawal is made for reasons other than qualified educational expenses. Each state has the option to allow non-residents to invest in its plan and the state plan chosen does not dictate the state in which the beneficiary attends school.While there may be additional taxes or penalties for withdrawal of funds for non-educational purposes, the penalty is generally waived if the beneficiary has died, become disabled, or if the funds are not needed because the beneficiary has received a scholarship. The owner can also change the beneficiary by rolling funds over to another child. That way, if the eldest child decides not to go to college, you can put the funds to work for a younger sibling or other relative.For grandparentsSection 529 Plans offer estate tax benefits because contributions are considered completed gifts and are excluded from your estate. If the owner is a grandparent, they can also switch beneficiaries to other grandchildren. The rules can be complex and, although the 529 plans offer many benefits, they should be compared to other education funding alternatives before making a decision. Contact your financial professional to determine what makes the most sense for you.*This article is not intended to provide legal or tax advice. Please consult your attorney or tax advisor concerning your individual circumstances.Jeffrey Apps & Tracy Tutag offer securities and investment advisory services through AXA Advisors, LLC (member NASD, SIPC) 1290 Avenue of the Americas, New York, NY 212-314-4600 and offers annuity and insurance products through an insurance brokerage affiliate, AXA Network, LLC and its subsidiaries. They can be contacted at 926.6911 or tracy.tutag@axa-advisors.com.


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