New York (June 6, 2003) -- One of the unsung benefits of the new tax law is that it forges a new strategy for college savings -- gifting appreciated assets to children, according to financial planning experts.
The tax law slashes the top capital gains tax rate to 15 percent, but cuts even deeper for those in the lowest tax brackets, noted RIA's Federal Taxes Weekly Alert editor Bob Trinz. "Assuming there will be a gain when the child sells the stock and the child's other income is low, the child will pay an effective rate of just 5 percent on the gain," he noted. "If you have faith that the current tax scheme will be permanent, then it will be tax-free income."
That could prove useful for children over the age of 13 who are exempt from the "kiddie" tax (being taxed at the parents' tax rate on unearned income) and want to use that money for college expenses.
But it does present some downsides as a college savings vehicle, as opposed to, say, a 529 plan, notes CPA/PFS financial planner Jim Shambo. "A practical risk involved in that strategy is that now you have gifted property into the name of your child. In a 529 plan, the child is simply the beneficiary, so if they don't want to go to college, you can name a new beneficiary."
-- Tracey Miller-Segarra
