As the workforce grows ever more competitive, obtaining that college degree is more important than ever. Unfortunately, the costs of secondary education are on the rise, increasing more than 75 percent in many areas of the country over the past five years. As many families struggle to get by, more and more grandparents are chipping in to help finance their grandchildren’s college education.
Here’s how you can help ensure that your grandkids can afford to attend college.
1) Set up a 529 plan. These accounts allow money to grow both federal- and state-tax-free, so it’ll be there when the kids are ready to go off to schoo Be sure that you maintain status as the owner of the plan; in other words, grandma and grandpa control the plan, and kids and parents don’t. (Bonus: If your grandchild comes home from high school with a nose ring, you can change the beneficiary on the plan by simply calling my office and notifying us of the change.)
2) If the funds remain under your control, it won’t affect the student’s government-based financial aid. Unlike 529 plans owned by a parent or a student, the contents of the 529 don’t count against the student when financial aid eligibility is being determined. However, keep in mind that qualified distributions from the 529 are treated as untaxed income for the beneficiary on next year’s FAFSA, which may affect financial aid eligibility.
3) The 529 plan’s value is removed from your taxable estate. Yet, if you really need the funds — or you simply change your mind — you can access the money, minus a fee, at any time.
4) Money in the 529 grows tax-free if used for post-secondary school education. Eligible expenses include:
- Tuition
- Fees
- Textbooks
- Partial costs of room and board, if student qualifies as full-time
5) 529 plans allow for tax-free gifting. You can put a large sum into a 529 for your grandchild and avoid paying the gift tax, as long as you meet certain qualifications.
In today’s world, gaining an edge in the job market requires secondary education. 529 plans allow grandparents to help their grandkids get a leg up on the competition.
The cost of getting a college degree is on the rise, and the job market is more competitive than ever. More grandparents are helping fund their grandchildren’s secondary education; here’s why that’s a good idea.
Sources:
http://http://www.fastweb.com/financial-aid/articles/3486-how-do-grandparent-owned-529-college-savings-plans-affect-financial-aid-eligibility,
www.cnbc.com/id/100564195,
http://www.npr.org/2014/03/18/290868013/how-the-cost-of-college-went-from-affordable-to-sky-high
Stuart Steinberg, CPA, MBA has been dealing with families and their money issues since 1988. He can be reached at 55 Pleasant Street Newburyport and at (978)864-9581 and stu@eaglerockwealth.net
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor.
Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
The LPL Financial Representative associated with this page may only discuss and/or transact business with residents of the following states: AZ, CA, CT, FL, MA, MD, ME, NH, NJ, NY, OH, RI, VA, VT
Securities Offered through LPL Financial, Member FINRA (www.FINRA.org) /SIPC (www.SIPC.org).
