Year-End Setting is Prime for Planning

iShares said today that the current tax environment, combined with the characteristics of 529 college savings plans, can be most useful during this time of year. 

Stephen Jobe, director of 529 programs at iShares, said in a news release that, “With the country in full gear preparing for healthcare reform and additional tax changes under consideration, this year-end season will be a crucial one for tax strategy.”  He added, “529 plans were created specifically to make saving for higher education easier, and they come equipped with important tax incentives that CPAs and advisers can maximize during their planning process.”

iShares pointed out several tax incentives that should not be forgotten about for those thinking about starting a 529 plan:

  • Capitalize on accelerated gifting: Using a unique provision for accelerated gifting, individual investors can immediately reduce their taxable estate by $65,000 per beneficiary ($130,000 for a married couple) in a single year without losing control of those assets.
  • Liquidate UGMAs with gains now before taxes increase: Custodial accounts intended for higher education expenses may gain more through a conversion to a 529 plan, where assets have the potential to grow tax-deferred and qualified education expense withdrawals are free from federal tax.
  • Make the most out of RMDs: Discretionary required minimum distributions may earn more by reinvesting in a 529 plan, where account owners can also establish a financial legacy for future generations.
  • Maximize the earnings of Trust assets: Because many Trusts hold investments which put them in the highest tax bracket, those Trusts may benefit from reinvesting a portion of the assets – specified for higher education – in a 529 plan.