Thinking about Saving for Future Educational Expenses? How about a 529 Plan?
We know there are sexier ideas out there for investing, but if you don’t have an account established yet for your children or grandchildren’s current or future educational expenses, now may be a great time to establish savings that could be impactful in the future of a loved one.
If you already have a 529 plan in place, now may be a good time to review your investments you have set aside for future education expenses. This plan is designed to ease the burden of saving for college education costs. The new Tax Cuts and Jobs Act of 2018 changed 529 Plan requirements to not only allow for college education, but it now includes private elementary and high school education costs as well. The 529 plan is the parent or grandparent’s asset and if one child doesn’t use the full amount, you can quickly move the remaining funds to another qualifying family member without penalty. You can even name yourself if you have plans to take on grad school or perhaps take some classes in retirement!
A High Level Review of 529 Plans: Pay for Educational Expenses: From Kindergarten to Graduate school tuition, books, and other educational expenses at public, private and religious schools, universities and colleges, vocational-technical schools, and eligible foreign institutions. A 529 Plan held by a parent or a grandparent compliments FAFSA applications with less impact on possible financial aid available to the student.
Significant Tax Advantages: Earnings in a 529 plan grow tax-free and are not subject to taxes when the money is used for qualified educational expenses. Also, over 30 states currently offer full or partial deductions or credits for the contributions.
Start it and forget it: Most plans have a feature where you can make automated investments on a monthly, semi-annual, or annual basis to make it easy to save. Lifetime contribution limits are ranging from $235,000 - $525,000, but those looking to reduce estate taxes can contribute $15,000 per parent or grandparent using the annual gift tax exclusion. Additionally, the IRS allows you to use a five-calendar year period on gifting so that you can do five years of gifting at once so one parent or grandparent could start a plan with as much as $75,000. Either parents or grandparents could open an account with as much as $150,000!
At Trinity Capital Management, we know one size doesn’t fit all. If you have questions about your current college savings plans, setting up for a 529 plan, or need to know more about the features of a 529 plan, we welcome the conversation. Lastly, we think it’s also worth discussing the use of a Roth IRA to see if it might offer a better alternative for college savings. As always, we are available for a call to discuss the benefits and features with you.
Wells Fargo Advisors Financial Network and Trinity Capital Management are not legal or tax advisors. Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest. 529 Plans are subject to enrollment, maintenance, administrative and management fees and expenses. Non-qualified withdrawals are subject to federal and state income tax and a 10% penalty. College savings plans offered by each state differ significantly in features and benefits. The optimal plan for each investor depends on his or her individual objectives and circumstances. In comparing plans, each investor should consider each plan's investment options, fees and state tax implication.