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.”

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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