Loading ...The tax rules have changed, so you need to consider review you college funding strategies.
Planning for children 14 to 18 is now the same as under 14: The new tax laws raised the age for taxing unearned income of children at their parents’ rate. This affects planning for college funding. [see our recent announcements for more on the “kiddie” tax changes.]
A child can still receive up to $850 without tax and another $850 that is taxed at n more than 10%. However, any amount above can hit the highest rate, depending on the parents’ income. This means that the strategies of giving appreciated stock to children for tuition, using UTMA accounts and putting children’s college funds in CDs or treasuries just before college begins will all be penalized.
Using 529 plans now is now an even better alternative. If you do not want to put money in such a plan, then you need to use growth stocks that pay no dividends, municipal bonds, Series EE bonds where the income is not taxed until they are cashed and treasuries that mature after the child reaches age 18.
If you are considering establishing a 529 plan, you will want to review the plans available in all states, taking into account any benefit you may have from using the plan available in your state. Note – you do not want to over-fund a plan because amounts not used for college will be subject to taxes and penalties. [see our links for ways to check 529 plans]