Clarifying how the tax year is determined for a 529 contribution

Although I've discussed this with my accountant, you may want to verify with yours.

Here's how it works:

A contribution to a 529 plan is considered a gift to a person. There are specific limits as to how much money you can give someone as a gift set by the IRS.

The IRS considers the date the gift was given as the tax year of the gift.

This means that you had until December 31, 2008 to make a contribution to your child's 529 plan and have the contribution considered under the gift tax rules for 2008.

Contributions to 529 plans are not the same as IRA and retirement plan contributions, despite the fact that earnings (not contributions) are tax deferred - some states may provide tax incentives for contributions as well.

You can read about the gift tax details here at the IRS website.

The 2008 gift tax exclusion is $12,000 per recipient from each giver. A married couple can give up to $24,000.

These numbers increase $13,000 per giver in 2009 and $26,000 for a married couple.

As 529 plans are governed by states, you should also check to see what your particular plan contributions are.

Regards, makingourway

PS The whole concept of gift taxes falls very close into questions regarding estate taxes and inheritance.

529 college savings plan contribution deadline coming up

I've been planning on setting aside some money for our children's college savings this year, but was uncertain when the deadline is - the answer is 12/31.

It took a while to search the web and find when the actual deadline is.

There's a great morningstar arcticle that discusses it in detail, but the bottom line is that gift tax rules govern the determination of the tax year a 529 contribution is made.

This means that contributions are considered gifts, tax free up to the eligible IRS gift limit (I think it's $12k per spouse per year, for a total of up to $24k). The gift (in the form of cash), falls into the tax year the gift is given - there is legal debate as to when it's cashed, but it seems to be related to intent.

Regards,
makingourway

Upromise rebates might be able to pay down school loans

An article in yesterday's Wall St. Journal discussed Sally Mae's plans to allow Upromise 529 rebates to pay down school loans. Pretty exciting idea! I wonder if 20-somethings could use their shopping proceeds to pay down their school loans.

Regards, makingourway