Many parents and grandparents with 529 savings plans aimed at helping with college expenses may not be getting the full benefit from them.
As college tuition continues its steady rise the issue of growing college tuition and student loan debt has become a key issue at home and in politics as well as the 2016 Presidential election approaches.
The rising costs are also having an impact in estate planning. Instead of waiting to give grandchildren an inheritance, many grandparents are investing the money in 529 savings accounts to pay for college tuition.
Recently, the Wall Street Journal offered some tips on how to use these plans most effectively in “How to Be Smarter With a ‘529’ Account.”
The tips include:
- Fund Fully – To get the most that you can out of the plans, you should fund them as much as you can as soon as you can after a child is born. However, the plans can be funded at any time if that is not possible.
- Use Online Withdrawals – Many 529 accounts allow you to make withdrawals online directly to colleges. This avoids any potential IRS questions about whether or not the funds were used for qualified expenses.
- Caution for Grandparents – Grandparents may want to avoid paying out from 529 accounts until a student’s junior year to avoid potential issues with student loan qualifications.
- Not Always the Best Option – As good as 529 savings accounts are they are not always the best option for all families. In some cases it may be wiser to just pay for a student’s tuition, which can possibly be done as a tax-free gift.
The issue of 529 account options and the potentially unnecessary gift taxes can be discussed with an estate planning attorney.
Reference: Wall Street Journal (Nov. 8, 2015) “How to Be Smarter With a ‘529’ Account.”