Move custodial accounts to 529 cautiously

A. You are correct that the recently enacted Pension Protection Act removed the "sunset" provision from 529 plan withdrawals that was originally scheduled to expire after 2010. Under the Act, qualified withdrawals for higher education expenses from 529 college savings plans will re-main free from federal income taxes.

Uniform gifts to minors (UGMA) and uniform transfer to minors (UTMA) custodial accounts offer parents the greatest flexibility in that the funds do not have to be used only for qualified higher education expenses. Withdrawals from custodial accounts can be used for a wide range of children's expenses, such as private grammar schools, summer camps, or other general needs of the children.

Is it allowable to roll over custodial account assets into 529 plans in order to take advantage of qualified tax-free withdrawals? Unfortunately, unlike an IRA rollover, you will have to pay taxes on any gains within the custodial account at the time of the rollover. In addition, while 529 plans offer tax-free growth, if the assets within the plan are rolled over from a UGMA/UTMA custodial account, the assets are considered to be owned by the child, and, thus, the parents lose control of the account once the child reaches the age of majority.

Prior to making any changes, be sure to consult with your tax or financial adviser, who can assist you in comparing the current tax consequences to the future tax benefits associated with rolling over your custodial account into a 529 plan.

Q. What types of retirement plans, other than an IRA, can I take advantage of as a solo practitioner?

A. Until recently, the retirement plan options available to self-employed physicians and other small business owners were very limited. Due to some recent changes, you can now choose one of four retirement plans available.

Solo 401(k) plans. A 401(k) plan generally combines elective deferrals with matching contributions from the employer. The contributions are made on a pre-tax basis. The rules for contributions as well as distributions from qualified plans generally also apply to solo 401(k) plans. Distributions must begin by April 1 of the year following the year in which you turn age 7011/42, and are taxed as ordinary income. If you take distributions prior to age 5911/42, you will be subject to a 10% IRS penalty unless an exception applies.

Assuming that you are the only employee, you don't have to be concerned with the nondiscrimination rules that typically impact larger 401(k) plans. There is an annual dollar cap maximum on the elective deferrals that can be made to a solo 401(k) plan. For 2007, the limit is $15,500, which represents a $500 increase from 2006. But, just like last year, employees age 50 years or older can also make catch-up contributions of an additional $5,000, for a total 2007 pre-tax contribution of $20,500.