The North Carolina Tax Deduction for 529 Plan Contributions Expires 12/31/2013

When the new Republican-controlled North Carolina State Legislature overhauled our state's income tax, they removed the deduction for 529 plan contributions after 2013. 

See page 5 of the updated NC 529 Plan Program Description.  However, you still have six weeks to save up to $387 for 2013 contributions ($5,000 contribution for married couple filing jointly in the top income tax bracket).  See how much you can reduce your 2013 North Carolina state income taxes by clicking here.     

See my 529 plan post from last year for more general info on 529 education savings plans.

529 College Savings Plans

It's not too late to make a contribution to a 529 College Savings Plan and possibly reduce your state income tax bill (depending on your state and income situation).  

One thing I like about my home state's North Carolina 529 College Savings Plan is the ability to utilize very low cost Vanguard Index funds.  The one minor disappointment is the NC 529 Plan charges an additional 0.25% for administrative expenses, but even that amounts to just $12 for each $5,000 invested.  The second thing I like about the NC 529 Plan (for North Carolina residents) is that there are no income limitations in order to receive a state income tax deduction.  

(see the NC Department of State Revenue statement on the NC 529 College Savings Plan by clicking here)

A married couple in the highest North Carolina tax bracket (7.75% for taxable income over $100,000) can save up to $387 in North Carolina state income taxes with a contribution of $5,000 to the North Carolina 529 College Savings Plan each year.  I view this as the state of North Carolina paying me $387 each year for planning for my children's college education.

'Tis the Season to Give Financial Gifts to Children

Christine Benz of Morningstar recently published an interesting article called "The Best Ways to Give a Financial Gift to Children."  The article has good information for different ways to give a financial gift, but I might not classify them as the "best" ways. The article really focuses on more sophisticated ways to give larger amounts of money without letting the child spend it - at least not right away.

The article proposes 4 ways of gifting to children:

1. Set up a UGMA/UTMA account (Uniform Gifts/Transfers to Minors Act)
2. Contribute to a 529 Plan (college savings account)
3. Fund a Roth IRA (Individual Retirement Arrangement)
4. Give a financial knowledge gift (a basic finance book)

The article explains these 4 strategies pretty well so I'll let you read it yourself.  But, I'd like to add three simpler options below: