With the increase of student loan debt over the past 10 years, more grandparents are taking on the role of college funding. In fact, a Fidelity survey in 2014 found that 72 percent of grandparents feel it’s important to help out in this regard.1
Many retirees walk a tightrope between wanting to make gifts to help family members yet still ensure they’ll have enough assets to last throughout retirement — including any unexpected expenses. For those who’d like to contribute toward college expenses, the 529 College Savings plan offers quite a few benefits for grandparents. Here are some of the benefits to consider:2
- You can contribute up to $70,000 ($140,000 from a married couple) in one year, per recipient, if you elect to treat the contribution as made over a five-year period for gift-tax purposes.
- Some state plans allow the account owner to claim contributions as a state income tax deduction.
- The account owner retains control of the assets, so the money can be accessed if needed for an emergency. It’s important to note that investment gains would be subject to a 10 percent penalty for withdrawals that are not spent toward qualified education expenses. You also would be subject to income tax on those gains.
- If the intended grandchild doesn’t use the 529 money, the beneficiary can be changed to another relative. You even can use the money for your own qualifying continuing education.
- The 529 isn’t a savings account; the money is invested for growth opportunity.
- The 529 plan makes a good repository for required minimum contributions (RMD) from retirement plans.
The content provided in this newsletter is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney. All investments are subject to risk, including the potential loss of principal.
1 Saving For College. “Grandparents.” 2017. http://www.savingforcollege.com/grandparents/. Accessed March 10, 2017.
2 Kathryn Flynn. Saving For College. “Eight Reasons Why Grandparents Love 529 Plans.” July 16, 2015. http://www.savingforcollege.com/articles-grandparents/eight-reasons-why-grandparents-love-529-plans-671?page=1. Accessed March 10, 2017.