A column by State Treasurer Clint Zweifel
Every year it seems like the holidays start sooner and last longer filled with family trips, school parties and time with friends. There are gifts to find, meals to plan and memories to make. For those children on your lists, I encourage you to consider starting or adding to a MOST—Missouri's 529 College Savings Plan account. While higher education might not be on their wish list, contributions to a MOST 529 account could help the children in your life reach their goals.
Starting a MOST 529 account is easy. You can open an account with as little as $25. Opening an account and contributing to it by the end of year also qualifies you for a 2012 Missouri tax deduction.* You can also sign-up to use Ugift®, a service that lets you invite family and friends to celebrate the holiday season, birthdays and special occasions by helping save for your child’s higher education.
My wife, Janice, and I have MOST 529 accounts for our daughters. As they get older and closer to making their choices for higher education, I know we will be able to provide them with options. MOST 529 accounts can be used for eligible four-year colleges, two-year colleges and technical schools anywhere in the United States. Their MOST 529 accounts can be used to help them pay for qualified higher education expenses such as tuition, certain room and board expenses and books.** As their parents, we benefit from the fact that our contributions made to and earnings from MOST 529 accounts grow deferred from federal and Missouri state income taxes. MOST 529 has low costs and no account fees for Missouri residents, and Missourians can choose from a wide range of investment options at www.mostcollegesaver.com.
One of my favorite examples is all about the power of compounding. If you save $50 a month from the time a child is born until he or she is age 18, you could have almost $17,000 saved. This is based on a 5 percent annual return and no withdrawals during the period, but it is an example of how even a small investment can really add up over time. I want to make sure you know investment returns are not guaranteed, and you could lose money by investing. This hypothetical example does not represent any particular investment and actual returns may be higher or lower. The final account balance does not reflect any taxes or penalties that may be due upon distribution.
Grandparents, there are also gift and estate tax benefits for those using MOST 529. For 2012, individuals can contribute up to $13,000 per year, or $26,000 per year if married, filing jointly, without being subject to federal gift tax. You may also contribute up to $65,000 in a single year, or $130,000 if married, filing jointly, for each beneficiary without incurring federal gift tax as long as you do not make any other gifts to that beneficiary for the next four years. If an account owner passes away, the money remaining in your MOST 529 account will not be included in your estate for federal estate tax purposes.*** For more information on these options, talk to your tax advisor or estate-planning attorney.
As you go about your holiday shopping, I hope you join Janice and me and contribute to the future education of the children in your life through a MOST 529 account. This could be the prized gift for years to come.
Now is the time. MOST is the Plan.
*Contributions by account owners to the Plan up to $8,000 ($16,000 if married, filing jointly) in a tax year are deductible from Missouri state income tax, but may be subject to recapture in subsequent years if you make a nonqualified withdrawal.
**Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.
*** If you choose to take advantage of federal gift tax averaging options mentioned and you die within five years of contributing, a prorated portion of the contribution will be subject to estate tax.
Investment returns are not guaranteed, and you could lose money by investing in the Plan. Participants assume all investment risks, including the potential for loss of principal, as well as responsibility for any federal and state tax consequences.
If you are not a Missouri taxpayer, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program.
The Missouri Higher Education Savings Program (the “Program Trust”) is a trust created by the State of Missouri. When you invest in MOST—Missouri’s 529 College Savings Plan (the “Plan”), you are purchasing portfolio units issued by the Program Trust. Portfolio units are municipal securities. The Plan has been implemented and is administered by the Missouri Higher Education Savings Program Board (the “Board”). Upromise Investments, Inc., and Upromise Investment Advisors, LLC, serve as the Program Manager and Recordkeeping and Servicing Agent, respectively, with overall responsibility for the day-to-day operations, including effecting transactions. The Vanguard Group, Inc., serves as Investment Manager for the Plan. Vanguard Marketing Corporation, an affiliate of The Vanguard Group, Inc., markets and distributes the Plan. The Plan’s portfolios, although they invest in mutual funds, are not mutual funds.