The American Taxpayer Relief Act of 2012 extends or leaves intact provisions that may benefit families saving for and funding a college education.
529 plans unchanged
The new law did not affect 529 college savings plans, which offer some of the most meaningful tax benefits to savers. Account owners pay no federal income tax on the earnings in the plan, and there is no federal income tax when the money is withdrawn to pay for qualified college expenses. Contributions to the account may still be removed from an estate for tax purposes, yet owners retain control over the assets. Also, a special gift tax exclusion allows contributors to front load five years’ worth of gifts to a single beneficiary without triggering gift taxes.
Additional opportunities for saving extended
The new law extended several additional provisions for offering tax credits for college savings and expenses, and made some permanent.
The recent passage of the new tax law is an opportune time to connect with clients who have children attending college or planning for college. Parents and grandparents may want to learn more about the benefits of a 529 college savings plan and strategies for other new tax provisions.