The Gift of Education
- Posted in: Asset Protection
How about an education?
Give your children or grandchildren the most useful gift of their lives, and benefit yourself as well; contribute to their education with a 529 plan.
If you don’t know what a 529 plan is, The College Savings Plans Network describes it as “a tax-advantaged investment plan designed to encourage saving for the future higher education expenses of a designated beneficiary.” How does it work? According to SavingForCollege.com once you decide which state’s 529 plan is right for you and make the investment, “your investment grows tax-deferred, and distributions to pay for the beneficiary’s college costs come out federally tax-free.”
From an estate planning perspective, a 529 plan is an excellent tool for parents and grandparents because any contributions you make to the plan are considered complete gifts, excluded from your taxable estate, and will pass to your children or grandchildren free of estate taxes.
Contributions to a 529 plan are attractive on a personal level as well because even though it’s out of your taxable estate you still retain control over it. The money you’ve put into a 529 plan doesn’t go to the beneficiary’s education until you say so. You can collect a refund at any time. The amount you originally contributed comes back to you tax free, with only the earnings taxed as ordinary income.
There are some potential drawbacks to a 529 plan, such as medicaid concerns and administrative expenses, so you’ll want to talk to your financial planner before you jump in. But if you’re looking for a unique gift that will last a lifetime, and benefit yourself as well, a 529 plan might be just what you’re looking for.