Time to boost savings and lower taxes

By: State Treasurer Curtis Loftis

There’s no escaping the hustle and bustle of December. Even if you love gift shopping, Christmas music, and holiday parties, the end of the year is often nothing short of exhausting.

While I know the most wonderful time of the year is probably also your busiest, I’d like to recommend you add a simple activity that could help boost your savings and lower your taxes.

Review your 529 savings.
Start by reviewing the amount of savings in your Future Scholar, South Carolina’s 529 account. Are you on target to meet your savings goals? Next, review the contributions you have made to your 529 account this year. Have you contributed all your budget allows?

By contributing as much as possible as early as possible, your college savings have the chance to grow over time, and your earnings will have the ability to be compounded for as long as possible.

Time to consider an additional contribution that could not only boost your college savings but also help you reap the benefits of South Carolina state tax incentives.

Keep the following in mind when considering an end-of-the-year (or anytime) contribution:

1. Know what you can save on your state income taxes.
South Carolina allows residents to deduct 100 percent of their 529 contributions to a Future Scholar account. That very generous tax benefit is one of the best in the nation. Use it to your advantage by making an extra contribution to your Future Scholar account in 2023.

2. Know the deadlines for receiving income tax benefits.
You can contribute to your 529 account at any time. However, each state sets a deadline for contributions that qualify for tax savings for the current year. South Carolina’s Future Scholar deadline extends all the way up to Tax Day – April 18 – allowing you to claim those contributions on your 2023 tax returns.

3. Consider front-loading your account.
If you are financially able, you may want to consider frontloading your 529 college savings plan. Front-loading allows a larger amount of money to be given at one time so the funds have the ability to compound for longer than they would if making regular annual contributions.

The IRS has a special gifting provision for front-loading 529 accounts that allows you to exceed the $17,000 annual gift tax limit for an individual (or $34,000 for spouses). When you front-load, you contribute a one-time gift of the amount usually allowed over five years – without the gift tax consequences. That’s five years-worth of maximum contributions at one time ($17,000 x 5 = $85,000).

By front-loading, you can contribute $85,000 per child in year one, sit back, and enjoy the benefits of compounding interest on the larger amount. The contribution is tax deductible and will be treated as if you gave $17,000 per year for five years by the IRS. If you file jointly, you and your spouse are allowed to front-load up to $170,000. It’s important to remember that any gifts you make to the Future Scholar account beyond these amounts over the five years could be subject to federal taxes. A tax professional can help you decide if front-loading is good for your family.

4. Decide to use your tax refund for what’s important.
Are you expecting a tax refund check in 2024? Consider using it to invest in your child’s future education. Earmark it now for a lump sum contribution to boost the college savings in your 529 account. That way you won’t be tempted to spend it on something less meaningful.

5. Appreciate the tax-free benefits of saving for college with a 529 plan.
Enjoy these last days of 2023 and the wonderful benefit of watching your Future Scholar savings grow tax-free. Before long, the time will come when you’ll be using those funds to pay for qualified education expenses, and when you do, I know you’ll be thrilled to withdraw those funds tax-free, too.

Curtis Loftis is the State Treasurer of South Carolina. He also serves as the administrator of South Carolina’s Future Scholar 529 College Savings Plan. Visit treasurer.sc.gov or futurescholar.com for more information on ways to save through a 529 plan.

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