The New York Times
Your Money – September 1, 2012
Giving to a Newborn’s College Savings Plan
By Ann Carrns
The best gift any of us can give to newborn babies is to point their sleep-deprived parents in the direction of a good 529 or other college savings plan and then seed the account with a little bit of money.
Money in these accounts grows tax-free, and you can withdraw it without paying any capital gains taxes as long as it’s used for educational expenses. Moreover, a majority of states offer income tax deductions or credits when people deposit money.
This is all nice and will become more so if our tax rates rise in the next decade or two. And the earlier you start, the more the money has time to grow (and the more you save on taxes).
Comments September 1, 2012
The total charges for just one year of a four-year undergraduate education; including tuition, fees, room and board increased 5.2% from the academic year 2010-2011 to the academic year 2011-2012. The biggest percentage increase,
at 6.0%, was at public in-state institutions. State funding reductions are leading to large increases. Further state funding reductions are expected to lead to acceleration in the percent of future increases.
A child born today can expect to pay over $267,000 for a four-year undergraduate education at a state institution and over $440,000 for a private institution, based on current total charges data provided by The College Board; and assuming 6.0% annual increases.
The current contribution limit per year to a 529 is $13,000 per beneficiary – that is $26,000 for a husband and wife, per beneficiary. A single contribution, totaling $65,000 per beneficiary, is permitted as long as no further contributions are made by that contributor (donor) to the same beneficiary until the sixth year.
529 savings plans are one of the most powerful, lowest cost estate planning vehicles. Contributions made to a 529 are removed from your estate. This is a critical point, as the estate tax exemption is slated to drop from $5.12 million to $1 million on January 1, 2013.
Aaron Skloff, AIF, CFA, MBA
CEO – Skloff Financial Group
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA) is CEO of Skloff Financial Group, a Registered Investment Advisory firm based in Berkeley Heights. He can be contacted at www.skloff.com or 908-464-3060.