April 25, 2011 07:30 AM
By Jonathan Clements, Director of Financial Education, Citi Personal Wealth Management
After the 2007-2009 stock-market plunge wreaked havoc with the performance of some 529 college-savings plans, there were fears that parents would take their education savings and go elsewhere. But in fact, assets in college-savings plans have jumped 56% over the 24 months through year-end 2010, according to Financial Research Corp. No doubt some parents remain leery of the stock market, even after the rally of the past two years. But just because you invest through a 529 doesn't mean you have to buy stocks.
If parents have little appetite for stock-market investing, they can always use a 529 to hold bonds or cash investments--and thereby still enjoy the tax advantages that 529s can offer. While contributions to 529 plans aren't tax-deductible on your federal return, the money grows tax-deferred and withdrawals are tax-free as long as they're used for qualified education expenses at a college or graduate school. You may also get a break on state taxes, but to qualify you will likely have to fund an in-state 529 plan.
Single individuals can contribute up to $13,000 a year to a 529 plan without worrying about the gift tax or a lump sum of $65,000 in the first year of a five-year period. Married couples can contribute up to $26,000 a year or $130,000 in the first of five years.
INVESTMENT PRODUCTS: NOT FDIC INSURED •INVESTMENT PRODUCTS: NOT FDIC INSURED
Source: Data on 529 asset growth from Financial Research Corp., March 2011 (www.frcnet.com/documents/college-savings-plan-growth-is-beating-industry-expectations.pdf).
Note: The 529 donor must be alive on January 1 of the year for which they claim the annual gift-tax exclusion or that portion of the contribution must be added back to the donor's estate for determining the taxable estate.
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Past performance is no guarantee of future results.
You should consider the investment objectives, risks, charges, and expenses of any 529 Plan Investment Options carefully before investing. This and other information is contained in the 529 Plan disclosure Document, which should be read carefully. Before investing, you should read the Plan Disclosure Statement carefully and consider whether your state of residency-- or your intended Designated Beneficiary's state of residency--offers any benefit, such as a state tax deduction, which is only available for investments in that state's 529 savings program.
Citi Personal Wealth Management and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
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