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Allegacy Investment Group
At Allegacy Investment Group, our representatives, available through
CFS our broker-dealer, specialize in helping you establish and
maintain the right college savings plan for your needs. Our advice
comes from years of experience and, unlike most other financial
institutions, it is completely objective. So, you get the right
college savings plan for your unique situation. And your child
gets the opportunity for an educational future he or she can count
on.
Become a member now! Visit ChooseAllegacy.org!
Have questions? Learn more about Allegacy Investment Group or call 336-774-3400 / 800-782-4670.
Uniform Gift to Minors Act (UGMA) and
Uniform Transfer to Minors Act (UTMA)
A donor may make an outright gift to a custodial account for
the benefit of a minor child. The parent or custodian may retain
responsibility of management of the assets in the account subject
to the terms of the act. The normal rule regarding the annual
$11,000 limit for gift tax exclusion applies. The donor may choose
to contribute from anumber of assets, such as stocks, bonds,
mutual funds or real estate. The funds may be used for any purpose,
including education. One possible problem with the UGMA and UTMA
is that upon reaching a certain age, specified by each state's
laws, the child has full discretionary control over the accumulated
assets.
Coverdell Education Savings Accounts
(formerly Education IRAs)
Taxpayers may deposit up to $2,000 per year into a Coverdell
Education Savings Account (ESA) for a child under age 18. Parents,
grandparents, other family members, friends, and children themselves
may contribute to the Coverdell ESA, provided that the total
contributions during the taxable year do not exceed the $2,000
limit. Amounts deposited into the account grow tax-free until
distributed, and the child will not owe tax on any withdrawal
from the account if the child's qualified higher education expenses
at an eligible educational institution for the year equal or
exceed the amount of withdrawal. Eligible expenses also include
elementary and secondary school (K-12) costs and the cost of
computer equipment, Internet services, and software. If the child
does not need the money for post-secondary education, the account
balance can be rolled over to the Coverdell ESA of certain family
members who can use it for their education expenses. Amounts
withdrawn from a Coverdell ESA that exceed the child's qualified
education expenses in a taxable year are generally subject to
income tax and to an additional tax of 100/0.
Qualified State Tuition Programs (Section
529 Plans)
Section 529 Plans are authorized under Internal Revenue Code
Section 529 and are sponsored by the individual states. These
programs allow parents, grandparents and non-relatives to contribute
money to an account of which the child is the beneficiary. There
are two types of plans: a prepaid tuition plan and a savings
plan. Prepaid tuition plans guarantee that the investment will
at least keep pace with increases in college tuition. Restrictions
may apply regarding who may contribute to the prepaid plan and
which schools are eligible. Private colleges and universities
may establish prepaid plans beginning in 2002. Savings plans
are managed investment funds that can be more flexible. Funds
withdrawn to pay for qualified education expenses are also free
from federal income tax.* The child may attend almost any accredited
college, university, or trade school regardless of location.
These plans, having no income restrictions, are available to
almost anyone. Unlike UGMAs and UTMAs the donor retains control
over the funds. Tax-free rollovers from one plan to another are
allowed for the benefit of the same beneficiary once per year.
Because contributions are considered completed gifts, the plans
offer estate-planning advantages. Some plans offer preferential
state tax treatment. Funds may be transferred, if necessary,
to a family member of the beneficiary without penalty. Withdrawals
without penalty are also allowed for scholarship, death and disability.
Consult with your legal or tax advisor to determine your eligibility
to use a specific strategy, and adverse tax consequences of a particular
strategy, and whether a particular strategy would be beneficial
for you.
* Free withdrawals are scheduled to end on December 31, 2010 with
the sunset of the Economic Growth and Tax Relief Reconciliation Act
of 2001.
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