Most parents with college age children will be searching for financial aid this summer because the cost of college is sky rocketing. Most parents with younger children should be saving now to avoid any crisis when their kids are old enough to go to college.
529 Savings Plans can be a great investment and great tax saving device for donors and students alike. Money placed in a 529 College Savings plan is not taxed as long as the money is used for education costs which may include tuition, room, board and books among any other education related costs.
Money deposited into a college savings plan is considered a gift the same way a check in the amount of $10,000 given directly to an individual is a gift. The same limits apply to deposits into a college savings plan as to other types of gifts. The federal annual gift tax exemption is $13,000. Gifts made to a 529 College Savings Plan over $13,000 in any given year may be included in the lifetime federal gift tax amounts. Similar to other types of gifts, only the amount of money over the annual $13,000 is included in the amount for lifetime gifts made. Money placed in a 529 College Savings Plan is a gift to the beneficiary of the plan the year it is given, even though the beneficiary may not actually receive the benefit of the gift until years later.
The laws regarding 529 College Savings Plans allow an individual to give up to $65,000.00 in one year to a 529 plan and have it treated as separate annual gifts of $13,000.00 for five years. The current tax laws encourage people to give to college funds because college debt is getting out of control. Grandparents, aunts, uncles, and family friends can all give to a student’s 529 college savings plan and take advantage of tax benefits while helping a student pay for college.