January 11, 2016

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Article

Give Yourself a Break

Take the 529 Tax Break Now and Set a Course for a Prosperous Future

By Lynne Ward

January 11, 2016


It is a beautiful thing to help a child achieve education and career goals by saving for his or her future college costs.

This value is shared by the state of Utah, which offers incentives for college savers in the form of tax benefits. The end of the year is approaching, but you still have time to take advantage of the 2015 tax benefit of contributing to the state’s official 529 college savings plan, the Utah Educational Savings Plan (UESP).

While the state offers a nice bonus of tax credits for contributions to UESP accounts, Utah’s college savings plan has a greater vision in mind. People who receive a college education have a better chance of being employed and increased earning potential. Children who have savings set aside for higher education are more likely to enroll in and graduate from college.

Contributions to college savings accounts and the accompanying tax credits find themselves on a common thread—inspiring children’s future and investing in Utah’s economic prosperity.

This year’s tax benefits are detailed below:

 

2015 Utah State Income Tax Benefits Per Qualified Beneficiary

Filing Status

Maximum Eligible Contribution

Maximum Utah State Income Tax Benefit

Maximum Utah State Income Tax Deduction

Single

$1,900

$95

 

Joint

(including Grantor Trusts filing jointly)

$3,800

$190

 

Trusts

$1,900

$95

 

Corporations

 

 

$1,900

Also, contributions to a UESP account are treated as a completed gift to the beneficiary for federal estate and gift tax purposes.

Normally, up to $14,000 ($28,000 if filing jointly) may be gifted from one individual to another each year without incurring gift tax liability. A special provision for 529 plans allows an individual to give $70,000 ($140,000 if married filing jointly) to a single beneficiary in one year without creating a taxable gift, as long as the individual makes an election to treat the entire gift as a series of five equal annual gifts.

In addition, earnings in UESP accounts grow tax-deferred, and withdrawals are not subject to state or federal income taxes when used for qualified higher education expenses. The tax-year deadlines for transactions to UESP accounts are 11:59 p.m. on December 31, 2015 for online contributions, and 5 p.m. (MT) on December 31, 2015 for manual contributions.

Don’t have a UESP account? Visit uesp.org to learn more about the benefits of using a 529 plan to save money for college and to sign up for a free account. Signing up is simple and requires no minimum balance or initial contribution.

Planning for the Future

Statistics show that as people achieve higher levels of education, the more likely they are to be employed, their earning potential increases, and they may be able to contribute more to the economy.

“Education Pays,” a report issued in 2013 from The College Board, calculated the median earnings in 2011 of people age 25 and older who worked full time. It found that those who had obtained a bachelor’s degree earned about $21,000 more annually than those with a high school diploma. It also found that 82 percent of people who had earned a bachelor’s degree or higher found themselves employed in 2012, compared to 67 percent who had only a high school diploma.

And people who have master’s degrees earned double before taxes and took home 90 percent more than high school graduates working full time, according to the report.

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