As the cost of college tuition rises, so do parents’ stress levels. According to one website, the cost of tuition for one year at some schools can be enough to make a decent down-payment on a house. By the time you’ve paid for your child to spend 4 or 5 years at a university you could almost have bought a vacation home!
This is why 529 plans are an appealing savings tool for many parents. Parents and grandparents already know most of the benefits of a 529 plan: Money inside the plan is outside of the parent’s taxable estate; additionally, funds held inside a 529 plan belong to the parent, not the child, which means not only that parents can choose to reclaim the money if needed in the future, but also that the money in a 529 plan won’t count against the student when he or she applies for financial aid.
What many parents (and grandparents) may not know, and which this article on Investors.com points out, is that 529 plans can also be a useful estate planning tool. “In 2012, the annual gift tax exclusion is $13,000. If you wish, you can put $65,000 into a 529 account for, say, your grandson now. That contribution will be treated as five annual installments of $13,000 in a row for gift tax purposes.” This can be quite a boon for parents or grandparents looking to provide some financial help to their college-age loved ones and avoid gift-taxes.
As beneficial as this sounds, it is important to always remember that no two families are alike, and what may be a useful strategy for one family can be detrimental to another. Please contact your financial planner or estate planning attorney for more information about how a 529 plan may benefit your family.
