| A 529 plan
is a state-sponsored education savings program that allows an
individual to save in a tax-deferred account to pay for a
beneficiary's post-secondary education at any accredited school in
the United States. Unlike Coverdell Education Savings Accounts,
which excludes joint filers with adjusted gross incomes (AGIs)
above $220,000 and single filers with AGIs above $110,000, there
are no income restrictions on those contributing to the plan.
529 plans come in two categories:
Prepaid Tuition Plans and College Savings Plans. Listed
below are some of the features of a College Savings Plan.
Taxation of Withdrawals
529 plan withdrawals are federal income tax-free as long as the
money is spent on tuition, room, board, books, or other qualified
expenses. Non-qualified withdrawals will require a 10%
penalty on investment gains and will be taxed as ordinary income
at the owner's rate.1
Contributions
Unlike Coverdell Education Savings Accounts where annual
contributions are limited to $2,000 annually, contributions to 529
College Savings Plans are essentially unlimited. Many states,
however, do tend to limit contributions once plan assets have
reached a defined maximum (typically $200,000 - $250,000).
Further, individuals can give up to $11,000 annually (or
$55,000 under a special 5-year provision2) per
beneficiary without incurring the federal gift tax.
Flexibility and Control
Plan assets can be used to pay for qualified higher education
expenses at accredited colleges and universities nationwide that
are eligible to participate in certain federal student aid
programs. These include public and private colleges and
universities, graduate schools, two-year community colleges, and
vocational-technical schools.
The donor retains control over the account. Unlike custodial accounts, under the Uniform Gifts to Minors Act, the money in a Section 529 College Savings Plan does not automatically become property of the child at age 18. The donor also may change beneficiary as long as it is within the same family.
Minimum Investment
Many plans have low initial minimums of $500 or $1,000 and can
usually be arranged for automatic investments of as little as $50
or $100 a month.
Summary
You have many choices when
saving for a child or grandchild's college education. Be
sure to consider the newly enacted Section 529: College Savings
Plans when making your decision.
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Life Insurance
Although life insurance cannot ever
fully replace the value of a key employee, it can indemnify the
business for the financial setbacks that can occur. Life
insurance can provide the business with needed funds to keep the
business running, to assure creditors that their loans will be
repaid, to assure customers that business will continue
operations, to cover the special expenses of finding, hiring, and
training a replacement.
How It Works
There is no particular form of
agreement or special contract needed by the business to obtain key
employee insurance on an executive or owner. However, the
board of directors should authorize the maintenance and payment of
the policy.
The applicant is the
business. The application is signed by an officer of the
business other than the insured. Generally, the premiums
will be paid by the business on an after-tax basis and are not
deductible as a business expense. The business will be
designated as the beneficiary and the insurance proceeds received
upon the death of a key executive are not subject to federal
income tax.
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