New York state 529 college savings plan are counted to among one of the best plans in the state. One of the main reasons why it has become popular is the tax benefits that it offers. The plan is considered to have the best tax cuts not just for New York residents, but also for residents from all over the nation. Here we discuss the three main incentives that you can get with the New York 529 Savings Plans.
1. Federal Tax Incentives – If the amounts invested in the New York 529 Savings Plans are withdrawn for the purpose of the education of the beneficiary itself, then there will be great federal benefits. This will also allow the assets to grow deferred from tax. If the amounts are withdrawn for a nonqualified purpose, then there is a 10% federal penalty tax, and the federal incentives are stopped.
2. State Tax Incentives – The state benefit on New York’s 529 plan is applicable to the tune of $5000 for an individual payer, and double that amount for a couple making a joint file. This is applicable only to taxpayers who pay within the state of New York, and might not be quite feasible for those who are coming in from other states. These deductions will cease to exist if a withdrawal is made to pay for expenses that can be classified as nonqualified withdrawals, i.e. the withdrawals that are made for reason other than to pay for higher college education expenses. In case the beneficiary becomes unavailable to pursue college education either due to death or due to some handicap, then the plan will continue to give out deductions.
3. Gift Tax Incentives – The federal rules exclude an amount of $12,000 per year for an individual and $24,000 a year for a couple from gift tax. If the contribution to the account of a New York 529 Savings Plan made by an account owner does not go beyond this amount, then the contributions will continue to enjoy a gift tax-free status. This gift incentive will take into amount all other gifts that are made by the same person to the beneficiary too, and that amount will be deducted from the total amount eligible for gift tax.
There is also an option of splitting the gift tax deductions into a five-year period on an equal division basis. The maximum contribution that an accountholder makes on a New York 529 Savings Plan is $60,000 and $120,000 for couples. Supposing a person makes this maximum investment, it becomes five times the maximum allowable gift tax for deferment. Hence, the accountholder can split the total amount to be eligible for gift tax deductions over a five-year period.