Saturday, September
4 2010
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Saturday, September
4 2010
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Announcing a new acquisition!!
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What's New at Forte for the year 2009 April 2009 Having Trouble Coming Up With Your Grandkid's Graduation Gift? Try the Gift of Tax-Advantaged Savings By Forte News Department It’s a few short weeks until cap and gown season
begins, and for grandparents hoping to do something nice for their grandkids
and something sensible for their estate, there are several options to explore. Roth
IRAs: The Roth option is a good one if
you want to help them start a retirement fund of their own or if you want them
to inherit a Roth where they can make tax-free withdrawals after your death. Roth IRAs aren’t a useful alternative for very young
kids because the rules state that all Roth holders have to have earned income
to be able to make contributions. If they fit that description – as many kids
working in high school do – either their parents or guardians can open the
account and grandparents can make contributions to match the percentage of
earnings kids put in their Roth IRA. Grandparents simply match that
contribution. Also, if
you have a Roth IRA, you can benefit your grandchildren by naming them as your
primary beneficiaries, and when they inherit it, they’ll be able to make
tax-free withdrawals for a home, an education or any other purpose. Parents
or grandparents may want to consider setting up and funding a Roth IRA for
their children or grandchildren as soon as the children or grandchildren have
enough earned income from part-time or summer jobs. This will ensure that the
five-year requirement is met when the individual for whom the Roth IRA is
established is ready to make a withdrawal to buy a home, for example. 529 Plans: Another great tool for grandparents
is the 529 college savings plan. Grandparents can fill out a plan enrollment
form designating a grandchild as beneficiary, select the investments from the
plan’s options, and make future contributions either by check or by automatic
contribution. It’s also fine for
grandparents to make their contributions directly to a 529 account already
owned by the grandchild's parents. As a refresher, 529 college
savings plans – named
for the federal law that created them in 1996 – allows a parent to open a
tax-deferred college savings plan with as little as $25 to start in some
states. A 529 college savings plan is
not the same thing as a 529 prepaid college tuition plan. Prepaid tuition plans
are just that – tax-deferred savings plans that allow you to save for tuition
for in-state schools (though some plans allow you to transfer out a portion of
those assets to out-of-state schools). Also, it’s important to note that
prepaid tuition plans are not an automatic guarantee a student will get into
that college. Since 2006,
withdrawals from 529 plans have been permanently tax-free. In some states,
contributions may also be deductible on state tax returns. All 50 states now
have 529 plans college savings plans, and a majority of them provides
additional incentives, such as a state-tax deduction to in-state residents who
invest in their respective plan. It’s a good idea to have your financial adviser or your
CERTIFIED FINANCIAL PLANNERÔ professional help you sort through
the details of various state plans. There are various services – including
Morningstar Inc. – that now rank the offerings of each state’s plan. www.SavingforCollege.com and www.FinAid.org
are leading sites to help educate you in how these plans work. Grandparents
can treat their contribution as complete gifts, which means they can apply the
$12,000 per year gift tax annual exclusion or an accelerated contribution of up
to $60,000, with a special five-year, gift-spreading election. Check with your
tax adviser first. Another great benefit is that a 529 plan owned by
grandparents should not affect the grandchild's eligibility to receive federal
financial aid because a grandparent's assets are not reportable on the free
application for federal student aid, or FAFSA, and the tax-free withdrawals
from a grandparent-owned 529 plan are not counted as student income or student
resources. Coverdell Education
Savings Accounts:
For grandchildren heading to private school who are under the age of 18, most
grandparents – check your eligibility with a tax professional first – can
contribute up to 2,000 dollars annually per grandchild to a Coverdale
Educational Savings Account. Coverdell
earnings accumulate free of federal income taxes, and can be taken to pay for
private elementary, secondary or college. Yet, your income is a factor. You can
make a Coverdell contribution as long as your modified adjusted gross income is
between 95,000 and 110,000 dollars if you’re single or between 190,000 and 220,000
dollars if you’re a married and filing jointly. Yet, if you exceed either of these requirements, you can ask the
parent of the adult child to open up the account and make the contribution,
though you will have to give up control over the account. Make a direct gift of your
grandchild’s tuition:
Under current tax law, you can make gifts of any amount to cover your
grandchild’s tuition. Yet, you’re going to need to pay the college directly and
you need to be aware that it won’t dent your federal estate tax exemption (3.5
million dollars in 2009), but it will cut the overall amount of your taxable
estate. You can, however, go ahead and
make additional gifts per grandchild of $13,000 to help with other college
expenses. March 2009 — This column is produced
by the Financial Planning Association, the membership organization for the
financial planning community, and is provided by David W. Henion , a local
member of FPA. | ||||||||||||||
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