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The end of the year is rapidly approaching. Here are six tax tips to consider before year-end.

The first 3 tips will make the holidays even happier for your family members, one is of interest if you reached 70 1/2 years in 2008, and the last two are important if you have created a trust or are a trustee of a complex trust having discretionary power to distribute income and principal.

TIP 1: Annual Exclusion Gifts

You may make tax free gifts in 2008 of $12,000 ($24,000, if your spouse joins in making the gift) per person to your family members. Happy Holidays! 

TIP 2: Section 529 College Savings Plan

Do you want to give children in your family even more? Contributing to a Section 529 college savings plan may allow you to make larger gifts to a child than direct gifts or gifts made in trust. An individual may contribute $60,000 ($120,000 for a married couple) to a child's 529 plan account in a single year (equal to approximately 5 years' worth of annual exclusion gifts); provided that no further annual exclusion gifts are made to the child during the next four years.

The contribution must be made to a Section 529 account. The beauty of a 529 plan is that the income accumulates on a tax free basis and both principal and earnings come out of the plan tax free if used for qualified educational purposes. Also, as the donor, you may be entitled to a state income tax deduction for the contribution.

TIP 3: Payments of Tuition and Medical Expenses

Do you want to give even more? Payments of tuition and medical expenses made directly to the provider on behalf of an individual are not considered gifts. Accordingly, if you would otherwise make gifts to an individual in excess of the available annual exclusion ($12,000), you should consider paying outstanding tuition or medical bills on behalf of that individual directly to the provider.



 

 

TIP 4: IRA and Pension Plan Minimum Distributions

If you have reached age 70 , remember that you must take your required minimum distribution from your IRAs and pension plans by December 31.

TIP 5: Crummey Notices

Have you created an irrevocable insurance trust or any other irrevocable trust (such as an education trust) which gives the beneficiaries the power to withdraw contributions made during the year (called "Crummey powers")?

If so, you should confirm with the Trustee that he or she has sent the required notice to the beneficiaries. The notice should advise the beneficiaries that a contribution was made during the year and that they have a right to withdraw such contribution.

If the beneficiary does not wish to exercise his/her right to withdraw, it is a good idea to have the beneficiary sign an acknowledgement of the receipt of the notice and for the Trustee to keep it in the file with a copy of the notice.

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