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Financial Planning / Tax Strategies


Subject:  529 Plans and Gift Taxes Date:  9/12/2013  7:25 PM
Author:  JAFO31 Number:  119137 of 124284

At one time, advice for saving for clooege often suggested that grandparents who were interested in assisting with their grandchildren's college costs open a 529 plan with themselves (or himseolf or herself, if widowed) as the account owner the grandchil as the beneficiary. Doing so avoided reported the 529 anywhere on the FAFSA, because it was not an account owned by the grandchild/student or the student's parents.

As I understand the FAFSA calculations of EFC (Expected Family Contribution) 20% of student's assets are deemed available and 5.65% (more or less) of parents' assets are deemed available for EFC. In terms of minimizing EFC parent assets are better than children's asset, but not as good as grandparents' assets. And available income (as opposed to assets) are expected to be contributed at even higher rates.

"You should be sure to understand the gift-tax consequences of your contributions to the 529 plan. Whether you contribute to accounts owned by you, or to accounts owned by the parents or someone else, your contributions are a gift from you to the account beneficiary (and a generation-skipping transfer if the beneficiary is your grandchild). For large contributions (over $14,000) you may elect on a gift-tax form to treat up to $65,000 of the contribution as made over a five-year period. This election allows you to frontload more contributions into a 529 plan without exceeding the $14,000 annual gift exclusion.

Caution: The IRS has not yet indicated whether a contribution you make to a 529 account owned by someone else will be treated as two g