529 Plans: computers and Internet in 2009-2010

Named for Section 529 of the Internal Revenue Code, 529 Plans allow taxpayers to both reduce their taxable estates and to earmark funds for the higher education of a family member. Earnings from 529 Plans are tax-free.

Funds contributed to 529 Plans are invested to pay for an individual’s college tuition, room and board, or other related expenses. Additionally, the American Recovery and Reinvestment Act (AARA,) (also known as the Stimulus Bill,) now permits computer technology and equipment, or Internet access and related services to be purchased for eligible students under a 529 Plan for 2009 and 2010. However, software designed for sports, games or hobbies does not qualify unless it is principally educational in nature.

In 2009, individuals can contribute up to $13,000 per year ($26,000 for a married couple) to 529 accounts without the requirement of submitting a gift tax return. Alternatively, up to $65,000 ($130,000 for a married couple) can be contributed in the first year of a five-year period, as long as there are no additional gifts to that same beneficiary over the same five-year period.

529 accounts can be a great way to move a sizable amount of money out of a taxable estate.

By: Todd C. Ratner, Esq.