529 Plan or General Gifting Trust - Which is the Right Vehicle for Your Gifts?


Gifting is an integral part of estate planning and the incredible rise of education costs has made gifting to fund educational expenses an important consideration for many families.

One common technique implementing this planning is the creation of a 529 Plan for a benefit of a child or grandchild. After-tax dollars are contributed to these accounts which then grow federal income tax free for the benefit of the beneficiary of the account. The funds must be used for college tuition and related expenses. If the beneficiary does not use all the funds, the beneficiary can be changed to another child. To the extent funds are used for noneducational purposes, they are subject to income tax and a 10% penalty on the earnings of the account. The penalty can be avoided if the beneficiary dies, becomes disabled or receives a scholarship.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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