Estate Planning: 529 Plans for Children & Grandchildren
Summer is passing by at lightning speed and it’s getting closer to “back to school” time. So, it is probably a good time to think about options available for your children’s or grandchildren’s college education.
The 529 Plan is a college funding plan, sponsored by the state. It permits you to make cash contributions to this investment account and the earnings are not taxed federally so long as the withdrawal is made for qualified higher education expenses. Those would include tuition, books, supplies, computer equipment, and some room and board.
You may make gifts of up to $14,000 per recipient (or $28,000 for married couples) per year without triggering gift taxes without using any of your lifetime exemption. Additionally, 529 Plans permit you to “bunch” five (5) years’ worth of annual gifts into a single year. Therefore, you may gift $70,000 per recipient ($140,000 for married couples) in the first year. Once you do this, you may not make another contribution to the plan until year #6.
There are a few disadvantages. One is that the contribution must be cash. You cannot gift stocks or real estate. Additionally, the money will be counted if the student is seeking financial aid.
If the child or grandchild decides to forego college, the beneficiary can be changed to another child or grandchild.
While a 529 Plan may not be ideal for everyone, it merits a closer look when you are planning for your child or grandchild’s future.