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Highlights of 2006 Tax Changes
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Individuals may open a special
higher education savings account and benefit from states and federal
tax incentives.
The account owner must designate a single beneficiary for each
account. They may also contribute $60,000 ($120,000 MFJ) in one
year and have use the $12,000 ($24,000 MFJ) gift tax exclusion
over the next 5 years.
Investment earnings on 529 college
savings plan accumulate federal income tax deferred until the
money is withdrawn. State income tax treatment on contributions
may vary. The account beneficiary can use the funds to pay for
tuition, room and board, fees, books, supplies and equipment required
for enrollment or attendance.
Beginning in 2002, distributions
used pay qualified higher educational expenses will not be taxable.
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Either the account owner or the
beneficiary must be a New Jersey resident when the account is
opened. There is a cumulative contribution limit of $185,000 per
beneficiary. Qualified withdrawals are exempt from Federal and
New Jersey state income tax. The funds can be used at any accredited
two or four year college or university in the United States. If
student decides to attend a New Jersey undergraduate school, the
state will contribute an extra $500 to $1,500 to the account,
depending on the number of years of contributions of at least
$300 per year ($500 for four years, an extra $250 for every two
years after that, up to the maximum $1,500 for twelve years).
The first $25,000 in NJBEST savings is excluded from consideration
in awarding the beneficiary New Jersey State need-based aid.
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NY State College Choice
Tuition Savings Program
Married individuals may each deduct
contributions up to $5,000 annually, for a total deduction of
up to $10,000. Investment earnings on account are also New York
State tax exempt, and are deferred for federal tax purposes. Up
to $100,000 can be contributed over the lifetime of all accounts
for one beneficiary. Additional contributions can not be accepted
if all accounts for the same beneficiary total $235,000.
The funds can be used at a public
or private institution of higher education or business, trade,
technical or other occupational school, whether or not located
in NYS.
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An account must be open
on or before December 31, 2006 in order to claim the State tax
benefits for the 2006 tax year.
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