As in years past, 529 providers have been busy with back-to-school ads, but this year, many of them are emphasizing why 529s are a better alternative to putting assets in a child’s name due to so-called “kiddie taxes” on capital gains, Reuters reports.
Under the new tax, which takes effect in January, the first $850 of a child’s earnings is tax-free and the next $850 is taxed at the child’s rate, which is usually 5% to 10%. Anything about $1,700 is taxed at the parent’s rate.
“As a result of the new law, it’s even less of a good idea to put money in a child’s name for college,” said Diana Scott, a senior vice president at John Hancock Financial Services and general manager of its college savings division. “We want to remind advisers that it makes 529 plans, which are a parental asset, much more viable for their clients.”
Andrea Feirstein, managing member of AKF Consulting, agreed. Stressing the disadvantages of the kiddie tax “makes it that much clearer that a 529 is the most tax-advantaged vehicle. It’s one more weapon in an adviser’s arsenal.”
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