529 Plans
These educational savings plans are run by the State and colleges. You should visit
www.njbest.com. The savings accounts can be front-end loaded up to $60,000.00 by
using the five-year election. The money grows tax-free and amounts paid out for
qualified educational expenses are also tax-free regardless of income. The beneficiary of
the account can be changed to a different student or family member. There is no tax
deduction on making the deposits and the money can return to the original donor but it
would be subject to income tax plus a 10% penalty.

Coverdell Educational Savings Plan
You can deposit up to $2,000.00 per student per year provided a single tax payer's income
is less than approximately $110,000.00. The account does not pay income tax on the
interest that it earns and qualified educational expenses are received tax-free. You cannot
get the account back but you do control the investments.

Uniform Transfer to Minors N.J.S.A. 46:38A
Money can be given to a minor to held by a custodian which is typically a parent. The
money can be used for education or other legitimate purposes but it becomes the student's
money at age 21. The interest on the money is taxable.

U.S. EE & I Bonds (Patriot Bonds)
If these bonds are in a parent's name and used for qualified educational expenses and
issued after 1990 and the owner's adjusted gross income is less than approximately
$110,000.00, the interest is not taxed. However, you must file Form 8815.

Minors Trust 2503c
The trust can hold any asset and generally qualifies for the Federal Gift Tax Deduction.
However, the child owns the money at age 21.

Minors Trust 2503b
This trust is called an income trust and can only have one beneficiary. All annual income
must be distributed to the beneficiary but the trust does not have to termite at age 21 and
can have different residual beneficiaries.

Kiddie Tax
Unearned income received by a child under 18 or a student up to age 23 is taxed. The first
$900.00 is tax-free. The second $900.00 is taxed at the student's rate and any income over
$1,800.00 is taxed at the parent's highest rate. The income must be disclosed on IRS Form
8615.

Scholarship Impact
All of the college type savings plans and assets impact a student's eligibility for
scholarships and Financial Aid.

 

 

This is a general outline. Please be sure to review actual rules & changes with us.

 

 

Law Offices of Joseph M. Hoffmann
Attorney at Law
21 Main Street
Newton, New Jersey 07860
973-383-7415