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"Super-Funding" College Savings

With college costs already astronomical and rising, saving for them isn't just a year-end thing. But if those prices - ... - have got you down, there are some ways to max out your savings before 2013 ends. You can stuff a lot of money into a 529 college savings plan now and then do the same thing at the beginning of 2014 - a strategy that advisers say they are seeing many wealthy clients adopt this year.

The year is almost up. Nevertheless, there is still one gifting strategy to consider. In fact, this strategy alone could give your college-bound grandkids an extra leg up on their advanced education. The timing and confluence of a number of gift tax and contribution rules may allow you to more than "fund" a 529 College Savings Plan. Did you know you can actually super-fund it?

As though just funding a 529 were not good enough, Reuters provided the skinny on super-funding recently in an article titled "Should you super-fund your 529 college savings plan?"

The short answer is "yes," if you have the means. Under the right circumstances, it may be more than worthwhile to superfund a 529 for your loved ones. By maximizing the rules in 2013, and then doing so again right after the ball drops in Times Square in 2014, some grandparents can earmark a cool $84,000 per grandchild for college savings in the coming weeks.

So, how does this work exactly?

Every year you can transfer $14,000 to anyone free of gift taxes through the annual gift tax exclusion. However, a special twist on this rule for 529 plans permits you to make five years of annual gift exclusion transfers in a single year. Accordingly, you could contribute $14,000 in the last days of 2013, then turn around in January and contribute another $70,000 (5 x $14,000).

Remember, 529 plans vary a bit from state to state. Some states are better than others. Regardless, this super-funding strategy is not just about college planning anymore. It is a powerful wealth transfer strategy at the same time. Think of it this way: you are moving great wealth to your loved ones while you can enjoy watching them make a life from it.

Even if this super-funding strategy is too late for you to implement in 2013, the idea remains. The question then becomes whether you want to give the inheritance now or leave it after you are gone? Perhaps the answer is a little of both.

In the right financial and family circumstances, a 529 plan will make perfect sense, super-funding or otherwise.

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