December 2020
College & Tax Planning

It’s holiday time. Stuff the turkey, shop for gifts, get the fireplace ready-and do your year-end 529 housekeeping. The following checklist should help you cross off that additional to do list item!

Make the Best Use of your Annual Gift Tax Exclusion: If you haven’t already exhausted your $15,000 annual gift tax exclusions, consider making additional contributions to 529 plans for your children or grandchildren before December 31. The annual exclusion recycles on January 1, so if you don’t use your 2020 gift allowance by then, you lose it. Remember to include ALL your gifts when figuring out how much of your exclusion you have left for each of your beneficiaries: Not just 529 plan contributions, but also cash and property gifts made during the year.

Make the Best Use of Superfunding Your 529 Plan: If you have a lot of money to sock away for college, you will be interested in the election that allows you to make a contribution of $15,001 or more to a 529 plan for your beneficiary this year, and spread it over five years for gift tax purposes. Five-year gift-tax averaging is also known as superfunding. A married couple not making any other gifts to the beneficiary during the five-year period can conceivably contribute up to $150,000 to a 529 plan for each child, and with the election, not run into gift tax problems.

Claim a State Income Tax Deduction or Tax Credit: You have an opportunity for immediate tax savings if you live in one of the 24 states offering a full or partial deduction for your contributions to the home-state 529 plan, including Utah and Arizona.

For the state of Utah and Arizona, Contributions for 2020 must be received by December 31st, 2020. Tax advantages differ between the two state though. Below is the Utah breakdown of just how much you can contribute to get that max credit!

For Arizona Residents things are a bit more straightforward. This tax incentive provides a State of Arizona income tax deduction for contributions made to any state’s 529 plan.

· Married couples can subtract up to $4,000 when filing jointly

· Single individuals or heads of household may subtract up to $2,000

Break Out the Midnight Oil If Your Child Is Attending College: Minimize your tax bill by maximizing your use of the available breaks for families incurring college costs. Tax-free 529 plan and Coverdell udent loan interest payments all depend to a large degree on proper coordination and timing. It’s easy to mess up. For example, qualified distributions from a 529 plan must be made in the same tax year as the qualified expenses are paid.

Also, if you have started that withdrawal process, you will be issued a 1099-Q from the IRS for that 529 plan. When you receive the 1099-Q each year, it may be necessary to include some of the amounts it reports on your tax return.

Lastly, If You’ve Been Procrastinating on Opening A 529 Plan, In the words of a famous shoe company, just do it. If you are interested in getting a 529 plan in place, give us a call at the office to start that process!

If you have questions, please contact us.

MARKET UPDATE
FINANCIAL PLANNING
401(k) ALLOCATION
GRAPHIC OF THE MONTH

To download the December 2020 Newsletter: CLICK HERE