According to the 2011 College Savings Plan Network, the average annual cost of college tuition and fees is more than $38,000.

Add in expenses for books, equipment, supplies, room, board, and it’s obvious that it’s never too early to begin saving for these expenses. Contributions to 529 College Savings Plans are great ways for grandparents, relatives, and friends to welcome the arrival of new or adopted children to the family.

Some states allow tax deductions for contributions to 529 College Savings Plans. Growth in the accounts accumulates on a tax deferred basis and withdrawals used for qualified college expenses are free from federal income tax and may be exempt from state income tax as well.

Anyone can donate up to $13,000 ($26,000 per couple in 2012) annually per beneficiary into 529 College Savings Plans without gift tax consequences because contributions are considered gifts to the beneficiary.

If the potential for estate taxes are a concern, consider sheltering inheritance money in 529 College Savings Plans for ones you love. Five years’ worth of the gift tax exclusion, or $65,000 ($130,000 per couple in 2012), can be made in a single contribution as long as no other contributions are made for that beneficiary for five years.

For estate tax purposes, the funds in 529 College Savings Plans are considered beneficiary assets rather than donor assets. However, if the donor dies within five years, then a portion of the contribution could revert back to the estate.

The account owner (not necessarily the donor) maintains control of the account until the funds are depleted. Additionally, once every 12 months, the account owner may change the beneficiary to another person in the immediate family. This makes it possible to use one account for two or more siblings, depending on their ages when attending college.

Non-qualified distributions of earnings are subject to income tax and a 10 percent federal penalty tax. Carefully consider investment objectives, risks, charges and expenses associated with municipal fund securities before investing. Information about these are available in the issuer’s official statement, which may be obtained from the issuer or your financial advisor. Please read the official statement carefully before investing.

Teresa Brown is a Registered Representative of INVEST Financial Corporation, member FINRA/SIPC. INVEST offers securities, is not affiliated with TMB Financial, LLC and does not offer tax advice. Teresa Brown can be reached at 866-876-5064 or Copyright © 2013 Teresa Brown


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