Indiana 529 Changes
There was an important update to the Indiana 529 tax credit that came in under the radar in
2022. Effective January 1st, 2023, Indiana has increased the maximum tax credit that you may
claim when making contributions to a 529 college savings plan.
Additionally, there have been changes made to the federal gift tax exclusion amounts which
mean families have the ability to contribute even more to their 529s without incurring any gift tax
Important changes for Hoosiers using 529s
Overview of the Tax Credit Changes
The Indiana 529 tax credit is based on 20% of your total contributions with a limit of $1,000. This
means that if you contributed $5,000 or more to a 529 then you would receive the maximum tax
credit of $1,000 ($5,000 x 0.2 = $1,000).
The recent update has increased the maximum credit to $1,500. This means that contributions up to $7,500 will qualify for a tax credit.
Avoiding Gift Tax + "Super-Funding" 529s
As mentioned above, the federal gift tax exclusion has been increased for 2023. The new
exclusion amount is $17,000 per beneficiary. The federal gift tax exclusion amount is the
amount of money that a taxpayer can give to an individual free from gift tax. Married individuals
have the ability to double-up the exclusion amount via “gift splitting”. This means that, in 2023,
a married couple filing jointly could give an individual $34,000 with zero gift tax ($17,000 x 2).
Individuals also have the ability to contribute even more to a 529 free from gift taxes through
something called “super funding”. Super funding allows taxpayers to use up to the 5 years worth
of their gift tax exclusion to make large lump sum contributions to a 529 free from gift taxes.
Let’s assume we have a married couple who is looking to contribute as much as possible to their child’s 529 but they want to limit their contribution to an amount that doesn’t incur gift taxes.
First, this couple can elect gift splitting which allows them to contribute up to $34,000 annually with no gift tax.
Second, they could make 5 years’ worth of contributions at one-time based on their annual gift tax exclusion of $34,000. This means that they could contribute $170,000 right now with zero gift tax ($34,000 x 5 years). This lump sum contribution is still only eligible for the $1,500 maximum tax credit but it allows them to quickly fund their child’s 529 with no gift taxes.
These new changes provide more opportunities for you to contribute to 529s on a tax-advantaged basis. Please feel free to reach out to us if you’d like to discuss any of these changes in more detail.
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Your life and health insurance policies are a key part of your overall financial plan. It’s important to review these policies each year.
If there are gaps, you can work to implement proper coverage.
In this checklist:
- If married and both have access to health coverage, does it make sense to each take coverage or to choose the better of the two plans to cover both?
- If paying for coverage on your own, has your situation changed such that you should consider shopping for a new policy?
- If retired and on Medicare – items specific to your needs and how they work with Medicare plans.
- If covered by life insurance offered by employer, have the coverage options or limits changed?
- For those who own permanent life insurance, it’s a good idea to review the policy including how any dividends are being applied and how the policy is performing.
- For those who own a term policy, review the time left on the policy’s term and consider whether the client’s needs have changed
- If employer provides disability insurance, have there been any changes to this coverage and is it adequate?
- Do other sources of disability income, such as Social Security and personal savings, sufficiently cover potential needs, or should you consider additional insurance?
Long-Term Care Insurance
- Does the policy have appropriate covered services, benefit amounts, and riders, such as inflation protection?
- Have you experienced a large increase in premium? If so, it might make sense to review other options.
Health insurance coverage is often a primary concern for folks who are retiring early. Understanding and weighing options can be complicated and stressful.
- Medicare eligibility
- Availability of coverage through your former employer
- Coverage under your spouse’s health insurance
- COBRA considerations
- The Premium Assistance Tax Credit