NOTEWORTHY

College Funding Tips from Laly Kassa

While deciding on the best way to save for college depends on your family’s unique situation, for many, the 529 plan offers the most flexibility and tax advantages:

Flexibility:

  • Account balances may be used for college tuition, room, board, fees, books, supplies and computers. Graduate school and vocational school expenses are also eligible.
  • Up to $10,000 per year may be used for grades K-12 tuition.
  • Account owners may change beneficiaries. For example, funds that aren’t used by one child may be applied to another child or extended family member.
  • Large variety of investment choices including age-based portfolios that become more conservative over time.

 

Tax Benefits:

  • Balance grows tax-free, and no tax is due on distributions as long as the funds are used for qualified education expenses.
  • Special provision that allows individuals to “frontload” 5 years of gifts, or up to $75,000 per beneficiary in 2019, and have the entire amount eligible for the annual gift tax exclusion. (Confer with your tax advisor if this technique is used; a federal gift tax return must be filed if more than $15,000 is given in one calendar year.)
  • Not included in account holder’s estate (as long as the 5-year period has passed for any frontloaded contributions).
  • Depending on your state, the contribution amount may be fully or partially deductible for state income tax purposes.

 

Additionally:

  • Parent-owned accounts receive favorable treatment for the federal financial aid asset calculation (only 5.64% of value is counted), and withdrawals are not included in income when calculating the expected family contribution. (Rules are different for grandparent accounts.)
  • Any withdrawals that are not for qualified educational expenses are subject to income tax and a 10% penalty.