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PERSONAL GIFTS

December 13, 2002

Personal gifts usually offer no income tax benefits. Gifts to "College Savings Iowa," the Sec. 529 college savings plan offered by Iowa, are a notable exception. Such gifts are deductible on Iowa (not federal) returns, whether or not you itemize. Gifts to any other Sec. 529 plans are non-deductible for both federal and Iowa returns. All Sec. 529 plans accumulate income tax free until withdrawal; the withdrawals are tax-free when used to pay college costs.

Personal gifts, even when not deductible, are an important estate planning tool. Taxpayers may make gifts of $11,000 per donee without eating into their lifetime estate and gift tax exemption. Any time you let a year go by without such a gift, you have lost an opportunity to save on estate taxes forever. Even if you think the estate tax will be repealed, if you have enough assets to worry about estate taxes, you still should hedge your bet with annual gifts.

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