How to Use 529 Savings Plans and Other Tools for Your Child’s Future Education
It can be a mistake to pass along assets outright to your children or grandchildren for the purpose of college planning. A lump sum, for example, might be too hard for a teenager or young adult to manage. Furthermore, you might pass this on in a way that leads to significant tax consequences. Because of these complex issues, it’s better to sit down with an estate planning lawyer and walk through your desires. Doing so maximizes the benefits of such a gift.
How to Properly Plan for Asset Transfer
Looking ahead to the future and incorporating this into your estate planning often includes multiple different goals. You may wish to pass on your tangible assets directly but also leave behind a legacy about your personal values. One way that many parents and grandparents choose to do this is through the support of their children and grandchildren as it relates to education.
Education is a powerful tool that can open many doors for your beneficiaries and the right strategies and tactics used by you can help to build a meaningful college savings funds that opens plenty of doors of opportunity for your loved ones.
Basics of 529 Plans
A child’s 529 college savings account is the most popular vehicle for passing on support in the future to a loved one. A 529 savings plan allows the beneficiary to reap the rewards in the form of an education. This makes it very easy for account owners to establish a strategy to make a contribution to a college savings fund on a regular basis. This is a very popular tool for estate planning purposes because it allows you to give a present that grows along with the child. Individuals are able to give or receive gift contributions from friends and family members over the course of their life, ultimately benefitting when it is time to head off to college.
Your state sponsored 529 savings plan offers a variety of different portfolios to choose from and any person who has a federal tax ID number or social security number can contribute to a 529 plan. Furthermore, state tax benefits may be available in particular locations for the contributor.
Benefits of 529 Plans
There are estate planning and gift planning benefits that can be reaped by establishing a savings plan. Withdrawals from a 529 savings plan are tax free at the state and federal level when they are used for qualified expenses for higher education. Saved funds, for that reason, could be used for technology costs, room or board, required fees, tuition, supplies, computers, and books.
At the vast majority of accredited universities and colleges across the United States, as well as some locations abroad, these funds can be used. How you articulate a plan for your children to obtain the benefits from a 529 savings plan requires careful consideration about your individual goals and who is enabled to step in if something were to happen to you. As part of your holistic estate planning strategy, you should consider the many different vehicles through which you can pass on benefits to your loved ones while minimizing tax liability.
In addition to regular gifting that meets the gift tax thresholds every year, you can also set aside money in a 529 college savings plan to support your loved one in the future. This is a worthwhile goal and one that should be discussed directly with an experienced estate planning lawyer. How you choose to pass on your assets and your legacy to future generations can be articulated easily and correctly in the proper estate plan.