Close Out Your Section 529 Plan and Take a Loss?

In recent years, many parents have been putting money into Section 529 college savings account plans. This allows them to get money out of their taxable estate, while retaining control over it and the right to take it back in the future.

Now, some parents are thinking very seriously about taking the money back. With the recent plunge in the stock market, many parents would like to close out the account and take an income tax deduction.

The IRS has okayed this idea, but there are limits. For instance, you must itemize your deductions, and you can only deduct the loss to the extent that it (plus your other miscellaneous deductions)

exceeds 2% of your adjusted gross income.

Also, if you have a lot of other deductions, closing out your Section 529 plan might subject you to the alternative minimum tax.

Non-Compete Agreement Is No Good If Company Is Sold

A non-compete agreement stopped being valid when the company was sold to a new owner, says the Pennsylvania Supreme Court.

Why? Because the agreement didn’t say that it would continue after the company was sold.

The owner of the company sold it to a new owner and assigned all its contracts to the new owner. But the court said this did not include the non-compete agreement. The court said the employee might have signed the contract out of loyalty to the first owner, but since there was nothing in the contract about

the company being sold, it wouldn’t be fair to hold the employee to the same promise as to a new owner.

However, different courts have come to different conclusions on this issue.

If you’re an employer, you should consult your attorney about whether your current non-compete agreements cover situations where the company (or part of the company) is sold. If you’re an employee, you should consult your attorney with any questions about whether your non-compete is still valid.

‘Eminent Domain’ Is Becoming Easier To Fight in Court

“Eminent domain” is the legal rule that allows cities and states to take your property if they need it, as long as they pay for it. For instance, if the government wants to build a highway through your backyard, it can force you to sell your land to it.

But in a growing number of cases, land-owners are fighting back.

Eminent domain lets the government to take your property if it will be used for the public good (such as a new road). But in many cases, the government is simply taking one person’s property and giving it to someone else. The government usually says this is for the “public good” because it is encouraging development of a blighted area, but the courts don’t always agree.

For instance, recently a community in

Illinois wanted to take property from a metal-shredding company and give it to a nearby racetrack to use as a parking lot. The Illinois Supreme Court refused, saying this wasn’t for the “public good.”

In just the past year, the Connecticut Supreme Court has rejected three attempts by cities to take property by eminent domain.

The trend is spreading. For instance, a federal judge in California recently refused to allow a city to condemn a church in order to give the land to a Costco store. And the Texas Supreme Court denied a proposal to take land so that a utility could run a 345,000-volt transmission line through a school campus.

Unmarried Couples Often Make Costly Planning Mistakes

Many unmarried couples don’t think about estate planning –– and don’t realize the many innocent mistakes they’re making that could cost them a great deal of money and headaches. For example:

. If you don’t have a will, your property will go to your blood relatives when you die, or will be otherwise disposed of under state law. It won’t go to your unmarried partner.

. Many unmarried couples frequently transfer assets back and forth. That’s fine for spouses, but unmarried couples who do this might be triggering gift taxes or adversely affecting income taxes.

. When spouses jointly own a home or a bank account and one of them dies, there’s a presumption for federal tax purposes that half the property is in that person’s estate. But if an unmarried couple does the same thing, there’s a federal estate tax presumption that all of the property is in that person’s estate –– which could mean a much higher estate tax bill. If the other person can prove that he or she paid for half of the asset, this can be avoided. But you’ll need excellent records, and many people don’t keep perfect records.

. Buying property in joint names may trigger gift taxes for unmarried couples.

n If a married couple sells a home, they qualify for a $500,000 exemption from capital gains taxes so long as one of the spouses lived there for two of the past five years, regardless of which spouse

owned the home. Many unmarried couples don’t realize that in order for them to get the same exemption, the house must be jointly owned and both of them must have lived there for two of the past five years.

. If you’re collecting disability or retirement benefits at the time you die, a spouse would probably have a right to continue receiving benefits. Unmarried partners won’t, so you’ll need to provide for them in other ways.

. A married person who dies can leave an unlimited amount to his or her spouse without triggering estate taxes. But that’s not true for unmarried couples –– any amount you leave to an unmarried partner counts toward the estate tax exclusion. If the estate exceeds the federal exemption (currently $1 million), estate taxes will be due.

. With married couples, doctors and hospitals will automatically turn to a spouse for health care decision-making. But for unmarried couples, the same is not true. If an unmarried couple haven’t created health care decision-making directives (allowing each other to make decisions if one person becomes incapacitated), doctors and hospitals will most likely consult family members instead.

In short, if a couple are not going to get married, they need to pay special attention to their estate planning.

It’s Easier to Borrow From Your 401(k)

There’s no limit to how many times you can borrow money from your 401(k) plan, according to new IRS rules.

Previously, employees could borrow money no more than twice a year. But the IRS now says that in certain situations, such as when families have several children in college, they might need to borrow more often.

Borrowing from your 401(k) is allowed as long as you don’t borrow more than $50,000 or half the balance, whichever is less, and you repay the money in roughly equal installments within five years.

Divorce Quiz

1. Is a marriage more likely to last if the couple lived together first?

2. In what year of marriage do the largest number of divorces occur?

3. Did divorces in New York increase or decrease after September 11?

4. Are combat veterans more or less likely to get divorced than other people?

5. In general, are divorces becoming nastier or less nasty?

Answers

(1) No. In fact, couples who lived together are 50 percent more likely to get divorced.

(2) In the fourth year.

(3) Divorces increased 4% in the year after September 11, and contested divorces increased 6%.

(4) Combat veterans are 62% more likely to get divorced than other people.

(5) In a recent survey, 47% of lawyers said divorces were becoming nastier; only 10% said they were becoming less nasty.