Section 529 plans have tax benefits

Update your estate plan
  Last year's tax law made major estate tax changes that phase in over a nine-year period.  The 2001 law also contains a sunset provision that brings back all the old rules in 2001.
  Some members of Congress would like to speed up last year's estate tax changes and permanently repeal the estate tax, but all of the recent proposals to do this have failed to pass.
  Though Congress may continue it's efforts to reduce or eliminate the death tax, it is not gone yet.  Putting your estate planning on hold until Congress acts could be a costly mistake.  Take the time to put your estate in order.
 
  Check for flexibility in the wording of your estate documents (wills, trusts, etc.)

  Name guardians for minor children and provide for setting up trusts if appropriate.

  Review beneficiary designations on your retirement plans, life insurance policies, and annuities.

  Consider the benefits of an annual gift-giving program.

  Determine whether you have adequate life insurance coverage.

  Be sure you have other important documents, such as a durable power of attorney and a medical directive.

For assistance with your estate planning, please call us.

  What are Section 529 plans?  Section 529 plans come in two forms - prepaid tuition plans and college savings plans.
  Prepaid tuition plans are designed to hedge against inflation.  You can purchase tuition credits, at today's rates, that your child can redeem when he or she attends one of the plan's eligible colleges.
  College savings plans let you build a fund for your child's college expenses.  These state-sponsored plans are probably what you've been hearing about in the news, and they are the focus of this article.

  How do college savings plans work?  Typically, a parent or grandparent sets up a plan for a child or grandchild, although you can establish one for anyone.  You can make a single contribution or a series of contributions to the plan.  Your contribution is a gift, and it's not tax-deductible. 
  You aren't allowed to contribute beyond what's considered necessary to pay for your child's college expenses (each plan sets it own limit).  Your child can use the funds that accumulate to pay school expenses at any college on the plan's list of eligible schools.  
  Every state now has a college savings plan in place or under development.  With so many choices, how do you decide which one is best for you?  Here are some things to consider.

  What are the tax benefits?  Once in the plan, your money grows tax-free.  Provided the funds are used to pay for your child's qualified college expenses, withdrawals are tax-free.  Qualified expenses include tuition, fees, books, supplies, and certain room and board costs.  
  Most state plans are available to both residents and nonresidents. 

Although the federal income tax rules are the same for every state plan, the state income tax rules vary.

  What are your investment options?  You cannot choose the investments in the plan.  You must choose one of the plan's investment options.  Most plans offer several options ranging from conservative to aggressive.
  If a plan's investments are not performing up to your expectations, you can switch investment options or switch to another state plan as often as once a year.  If you simply request a refund, you'll have to pay income tax and penalties on earnings.

  Where can you purchase a plan?  You can buy state plans through the sponsoring state or through a broker.  Before you invest in a plan, compare the sales fees charged by the state against those charged for a broker-sold plan.

  What if you change your mind?  If your child decides not to go to college, you can pick another beneficiary of the same generation within your family without losing the plan's tax benefits.
  If you change your mind about keeping the plan or need your money, you can withdraw funds from the plan.  But you'll generally have to pay income tax on the plan's earnings plus a 10% penalty tax.  The state may also charge a withdrawal penalty.

  Before you decide on a 529 college savings plan, do your homework.  Compare different state plans and compare 529 plans to other options for building a college fund.
  Although college savings plans offer some nice tax advantages, they're not the best choice for everyone.  We encourage you to work with us to develop and education funding plan tailored to your specific circumstances.

Estate tax history...

  1916:  Congress passed a 10% estate tax to help finance World War I. 

  1941:  Congress increased the top estate tax to 77% to help finance World War II.

  1976:  Congress dropped the top estate tax rate to 70%.

  1981:  Congress lowered the top estate tax rate to 50%.

  1993:  Congress increased the top estate tax rate to 55%.

  2001:  Congress made major changes to the estate tax rules including gradually dropping the top tax rate and increasing the estate exclusion amount over a nine-year period.

  2010:  The estate tax is scheduled to be repealed.

  2011:  Estate taxes are scheduled to return with a top tax rate of 55%.