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Posted by joetaxpayer on January 31, 2008, 3:48 pm
Lon wrote:
> I am a grandparent that has just recently set up a 529 College Plan
> for three grandchildren ages, 2, 4, 6. We did so not for any Estate
> Tax considerations, but to aid in the cost of each child's education.
> My wife and I control the funds which must be used for tuition, books,
> fees and other costs attributable strictly for college. The money in
> the accounts accumulates on a tax free basis and is not taxable when
> withdrawn if used for the preceding reasons. The 529 precludes misuse
> of the funds by either the parents or the grandchildren. If for some
> reason they do not go to college, the funds can be withdrawn, given to
> the children, and is taxable to them.* We deposited into three
> separated accounts with Vanguard, lump sums, and will not be making
> any further contributions.
*only the growth is taxed. That growth is subject to 10% penalty unless
you qualify for an exception to the penalty. The exceptions relate to
withdrawals made on account of the beneficiary's death, disability,
receipt of a scholarship, or attendance at a Unites States military
academy. A limited exception also exists for families claiming a Hope
credit or Lifetime Learning credit since those credits act to reduce
your qualified higher education expenses.
JOE
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