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Last Updated: 9/11/2009 3:25:21 PM
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Tax-free college savings plans and prepaid tuition programs — so-called 529 plans — can be used to buy computer equipment and services for an eligible student during 2009 and 2010. The change was part of the American Recovery and Reinvestment Act (ARRA), aka the Stimulus Bill, enacted earlier this year. Named for Section 529 of the Internal Revenue Code, 529 plans enable taxpayers to reduce their taxable estates while earmarking funds for the higher education of a family member. Earnings from these accounts are tax-free, and grandparents often set them up to help grandchildren with college expenses. Funds contributed to such accounts are invested to pay for an individual’s college tuition, room and board, or other expenses. For 2009 and 2010, the ARRA change adds to this list expenses for computer technology and equipment or Internet access and related services to be used by the student while enrolled at an eligible educational institution. Software designed for sports, games or hobbies does not qualify, unless it is predominantly educational in nature. Individuals can contribute up to $13,000 (in 2009) per year ($26,000 for a couple) to 529 accounts without incurring a gift tax. Or, up to $65,000 ($130,000 for a married couple) can be contributed in the first year of a five-year period, as long as there are no additional gifts to that same beneficiary over the five years. In other words, 529 accounts can be a quick way of getting a sizable amount of money out of a taxable estate. For more on 529 accounts, click here. For more from the IRS on the ARRA change, click here. The IRS has added a new Tax Benefits for Education section to its Web site that includes a special section highlighting 529 plans and frequently asked questions. |
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