Wednesday's tax tip Vol. 10 - College Savings

If you're in the position to start savings for a child's college expenses, avoid using UGTM (Uniform Gift to Minor) accounts.

First, these accounts are fully taxable and, if the income is large enough, taxable at the parent's marginal rate, aka the "kiddie tax".

Second, once a child turns 18 the account is theirs and I've seen it happen where a child has pulled all the money out of the account and blew it. While no one thinks it could happen to their child, if seen happen enough to know that it happens all the time.

If you are saving for a child's education consider a 529 plan. Under the plan the contributions are not deductible for federal tax purposes. However, the proceeds from the plan will be tax free if used for college education purposes.

The best part is the account is under your control so if Child A decides not to go to school, you can transfer the funds to Child B.

The downside of the plans; you are limited in the funds you can invest in. Each 529 plan is sanctioned by a state, so you effectively only have 50 state sanctioned fund family's to deal with.

If you want to know more, please email me at gtvcpa@yahoo.com