With the ever-increasing cost of private school and college education, the need to plan for children’s and grandchildren’s future education costs has become increasingly important for our clients. The options for such planning have also become increasingly complex. Section 529 Plans have become the “hot” vehicle for college savings. The attorneys at Diamond, Polsky & Bauer have been involved in using Section 529 Plans since their inception. 529 Plans offer both income tax and estate tax advantages not available with any other savings vehicles.
However, they are not the only, or necessarily the best, option for funding future education. For example, 529 Plans do not have the flexibility to cover the payment of pre-college private school expenses.
Other options include Uniform Transfers to Minors Accounts, Coverdell Education Savings Accounts (formerly Educational IRAs), Education Trusts for children or grandchildren, and life insurance policies. Each of these vehicles carries with it advantages and disadvantages, and the Coverdell IRAs, for example, are not available to all individuals, since they are limited to married couples with adjusted gross income of less than $220,000 per year.
With the new “kiddie tax” rules which come into effect in 2008, the investment income above $1,700 (the 2007 threshold) of children under 19 (or under 24 if full-time students whose earned income is less than 50% of their parents’ support) will be taxed at their parents’ tax rates. This new law will make 529 plans and Coverdell ESAs more attractive than ever.
With our expertise regarding these various alternatives, the attorneys at Diamond, Polsky & Bauer can assist you in selecting the vehicle best suited to meet your needs.