529 plans are a great way to help your grandchildren pay for college.
What kind of gift do you want to provide for your grandchildren?
Would you like to give them money to use on whatever they fancy?
Do you trust them to make wise decisions?
Or would you rather bestow a gift to invest in their future?
Chances are you want to help your grandchildren develop their own talents.
According to a recent nj.com post titled “529 plan funding for a grandchild,” you can do this with a 529 college savings plan.
As a grandparent, you can open a 529 plan to help your grandchildren save for college.
Why not just use a savings account?
With a 529 plan, the account can grow tax-free if the funds are used for education.
Also, you receive more control.
You retain ownership even though you are making monetary gifts.
Why is this important?
You control when distributions are made.
You can also change the beneficiary of the account.
How does that work?
If one grandchild does not need all of the money, you could allow another to use it.
What happens if I make withdrawals not for education? Say I need the money for a medical need?
You will owe taxes.
And there will be a penalty.
The penalty is 10 percent on the earnings from the withdrawal.
Are there specific financial benefits to you as the grandparent?
The money contributed to a 529 plan will be removed from your taxable estate.
This could be quite beneficial.
It is, however, subject to the federal gift tax.
Nevertheless, you can currently exclude up to $14,000 per year per beneficiary from the gift tax.
Do you have to make annual contributions?
Interesting, you can make a single contribution of up to five times the annual exclusion amount per beneficiary.
This adds up to about $70,000 per person.
You would have to wait another five years before you could make an excluded contribution.
There is also a lifetime exclusion amount of $5.49 million (which is itself tied to the federal estate tax exemption of $5.49 million).
Using a 529 plan as an estate planning tool can be especially helpful when states have a lower estate tax limit than the federal exclusion.
You will also want to communicate your intentions with the parents of your grandchildren.
Some colleges consider 529 plans when determining whether an individual qualifies for financial aid, grants, student loans or work study programs.
You could unknowingly disqualify your grandchild.
Whatever you do, it should be thoroughly planned.
In the end, you should work with an experienced estate planning attorney to determine whether a 529 plan would be a good fit for you.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").
Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: nj.com (May 12, 2017) “529 plan funding for a grandchild”