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Providing financial support for a child or grandchild's higher education is one of life's most rewarding gifts. Fortunately tax-advantaged vehicles known as Qualified Tuition Programs (QTPs) can provide both you and your beneficiaries with important financial benefits while helping them meet the ever-rising costs of a college education. The most common QTP is the 529 College Savings Plan.
Investments in QTPs grow tax-free. Distributions for qualified educational expenses, which include tuition, fees, books, supplies and equipment, as well as certain room and board expenses, also are tax-free.
|Investment and Insurance Products:
• Are Not insured by the FDIC or any other federal government agency
• Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
• May Lose Value
You can invest in any state's program and the funds can be used at any qualified institution, though certain states offer important benefits to residents who invest in QTPs sponsored by that state. Be sure to check the rules for your state of residency.
Contributions to QTPs are considered gifts for federal gift and estate tax purposes and qualify for the annual gift tax exclusion, currently $13,000. With 529 Plans, an initial contribution of $65,000 per beneficiary ($130,000 for married couples) can be treated as a taxfree gift made over a five-year period. Contributions may remove funds (and their anticipated growth) from your estate, which may lower your estate taxes.
Donors may remain as owners, referred to as account holders/participants, of QTP accounts and can change the beneficiary and/or the selected state program after the QTP is established. Account holders also may choose the initial investments – based on each program's qualified options – and also may make later changes as desired. Account holders determine when distributions may be made. Donors who remain account holders can even withdraw the funds (although penalties may apply) at any time, essentially revoking their gift.
Each state sets a limit on contributions – some as high as $395,000 per beneficiary – with limits generally based on forecasts of qualified higher education expenses. When the value (contributions plus earnings) of the account reaches the state's limit, no more contributions will be accepted. Contribution limits are generally state-specific, thus contributions made to one state's 529 Plan may not count toward the lifetime contribution limit of another state.
Learn about the key characteristics of 529 College Savings Plans, which apply to plans in all states - Read more »
Important Notice: City National Securities, as a matter of policy, does not give tax, account, regulatory or legal advice. The effectiveness of the strategies presented in this document will depend on the unique characteristics of your situation and on a number of complex factors. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of the proposed strategies before implementation.
City National Securities provides advice on several pre-screened programs to help you implement this tax-advantaged technique. For further information, please contact us at (800) 280-1464.