A 529 plan continues to be one of the most powerful tools available for financing higher education costs. They offer generous contribution limits, creditor protection, minimal impact on financial aid eligibility and various gift and estate tax advantages. Like most investment vehicles, however, these plans aren’t immune to market risk, and many have experienced significant losses over the last couple of years. Check out the full article in this newsletter as it describes an often-overlooked strategy to consider if a 529 plan is “underwater” — that is, its current value is less than the amount contributed to it.

2010 Year End Tax Guide (PDF)

Despite its name, the intentionally defective grantor trust (IDGT) can be a highly effective way of removing assets from one’s estate while minimizing estate taxes. This article explains the “defect” that allows trust assets to grow without being reduced by income taxes, and that allows further depletion of an estate and reduces the associated estate tax. But the IDGT is a complicated vehicle that must be carefully structured with the help of well-qualified advisors, or it may not pass IRS scrutiny.

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A 529 plan continues to be one of the most powerful tools available for financing higher education costs. In addition to being available to taxpayers at all income levels, 529 plans offer generous contribution limits, creditor protection, minimal impact on financial aid eligibility and various gift and estate tax advantages. Contributions aren’t deductible, but earnings accumulate tax-deferred and may be withdrawn tax free if used to pay for a beneficiary’s college tuition or other qualified higher education expenses.

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This issue’s “Tax Tips” section discusses why failing to maintain W-9 forms can be costly for a business; points out the deductibility of estate taxes that can be attributed to assets from an inherited IRA; and shows why it’s important to track reinvested dividends to avoid paying tax on them twice.

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