Today’s year-end planning tip is regarding 529 Contributions:
A 529 is a tax advantaged college savings account that may provide an opportunity for immediate tax savings if you live in one of the 30 states or more offering a full, or partial, deduction for your contributions to the home-state 529 plan. Most states require you to invest in the in-state plan to receive the deduction for your contributions. Though there are several states that are considered tax parity states, meaning you can use any state’s 529 plan to receive the deduction.
One strategy to Consider is “Superfunding” 529 accounts: Here, you can spread a tax-free gift to a 529 account over five years for gift tax purposes. So, a married couple not making any other gifts to the beneficiary during the five-year period can contribute up to $180,000 to a 529 plan for each child and, with the election, not run into gift tax problems.
Remember, 529 assets are NOT currently factored in as assets for the purpose of determining federal financial aid under the FAFSA process if held by grandparents, opposed to parents where they are considered. This may be a wonderful way for grandparents to save for their grandkids higher education without jeopardizing their ability to qualify for financial aid.