529 College Savings Account.
As summer ends and students return to School it maybe time for parents and grandparents to review College Savings Accounts.
Students entering 5th Grade will be entering college in 2027. I know 2027 seems far away, however, it is just 9 years. Think what you were doing 9 years ago, and it was like yesterday! What have you done to cover the cost of that college bound 5th grader?
As your financial partner we would be remiss if we did not talk to you about the advantages of a 529 College savings account.
One of the primary benefits of 529 plans is that all growth from your savings investments will remain federal tax-free when used for qualified expenses. College tuition, food, housing, computers, books and relevant equipment if the student is attending at least half time.
The 529 college savings account is owned by a parent or grandparent. The student never owns the account. If a family has a 529 college savings anyone can contribute to the account but only the owner can ask for the funds to be withdrawn to pay for qualified expenses.
529 College Savings accounts have minimums to start an account from as little as $250.00 with a systematic monthly investment plan of $50.00 per month. We can assist you in selecting the right 529 College Savings Plan.
Individuals can contribute up to $15,000 a year ($30,000 for couples) to any single 529 account. However, 529 plans allow donors to contribute up to 5 years of yearly maximum donations at once $75,000 ($150,000 for married couples) without incurring a gift tax.
Front-loading your contribution not only has the potential to maximize the tax free, compounding growth of your savings over a longer period of time, but it can also be a useful strategy towards lowering the value of your estate.
529 plans are also adaptable to changing life situations. You can change beneficiaries if your student decides not to go to college or keep the funds in the account to continue to grow if they decide to go back later. If your beneficiary receives a scholarship, you can withdraw up to the total amount of the scholarship without incurring a penalty, though you will have to pay taxes on the earnings.
As the account owner you also retain control of your funds, including distribution amounts and timing.
Impact on financial aid.
Rules applied in determining a student’s eligibility and amount of Financial Aid vary depending on who is making the payment: parents, or others, including grandparents. Depending on the circumstances, there can be impact, but this impact can be minimized or eliminated with effective planning. Colleges vary in their treatment of 529 plan assets when calculating financial aid, so be sure to check with your schools of interest.