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.
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:
- 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.
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