By Lucas Minor
Marketing & Communications Coordinator, Guaranteed Education Tuition
June 13, 2013
You may have heard someone say, “My grandmother left me some money for college.” It’s clear how much that grandparent valued higher education, and it shows her belief in that student’s future success. That kind of confidence is an inspiring gift with many intangible qualities.
The best estate plans will make the most of your assets while confirming the values most important to you. A proven method of encouraging higher education – while maintaining asset control and reducing tax liability – is to open 529 college savings plans for your children or grandchildren.
529 plans have significant advantages over other savings vehicles such as mutual funds, bonds or savings accounts. They allow you to maintain control over your asset and protect it from estate taxes. Plus, growth and withdrawals from a 529 plan are tax free when used for qualified higher education expenses. Another benefit of investing in 529 plans is that these assets are typically protected in bankruptcy filings.
How do I ensure the money will be used for college expenses?
When you open a 529 plan, you maintain full control as the account owner. You can designate an account owner survivor to take over the account at the appropriate time. Choose someone who will honor your intentions and further protect the use of the account by outlining specifics in your will.
You can now gift up to $14,000 per beneficiary, per year ($28,000 if gifting with a spouse) without incurring the federal gift tax. If the 529 plan allows, one-time contributions can be as much as $70,000 ($140,000 if gifting with a spouse) if amortized over five years.
What if my kids or grand kids don’t go to college?
529 plans allow a lot of flexibility. If your child or grandchild decides not to go to college, you can wait to see if plans change. You can also transfer it to another family member of the beneficiary (e.g. children, siblings, or first cousins). Alternatively, you can request a refund or “non-qualified” distribution, though you’ll incur taxes and other fees by doing so. The refund or withdrawal policy may differ by plan, so make sure to read the rules for your selected 529 plan.
A commitment to a child’s academic success is one the best gifts you can give. Remember that children who know they have a college savings plan in their name are six times more likely to attend. Your actions can truly inspire that special child in your life.
Remember that this advice is general in nature. You always want to consult a financial adviser when planning your estate.
About the Author:
Luke Minor is Marketing & Communications Coordinator for Washington’s Guaranteed Education Tuition (GET) program. The GET program has grown from 7,900 to over 152,000 accounts, with a fund valued at over $2.2 billion. Washington is unique in that the state only offers a 529 prepaid tuition plan. Minor manages all social media for the GET Program, and has been the author of several articles and blogs published this past year for the program.