For investors still contemplating year-end gift ideas, consider giving the gift of education to grandchildren.
There is still time to make a gift and fund a 529 college savings plan. The annual gifting limit for 2014 is $14,000 for individuals. A 529 college savings plan also offers a gift tax exclusion that allows five years’ worth of gifts — up to $70,000 for individuals or $140,000 for married couples — as a one-time contribution, provided that no other gifts are made within the next five years.
The gift also benefits students when they are applying for financial aid. If the grandparent is the account owner, the assets are not included in the calculation for determining a student’s eligibility for federal financial aid.
An additional tax advantage unique to 529 college savings plans can also help grandparents in estate planning. In certain cases, contributions to the account can be removed from an estate for tax purposes, while the account owner retains control over the assets.
It is important for investors to meet with a financial advisor or tax professional who understands their individual financial situation before taking advantage of these strategies.