529 PLANS ARE NOT JUST FOR KIDS ANYMORE

It’s “Back to School” time so our thoughts turn to tuition and how Grandparents can use 529 tax-advantaged savings plans to help their grandchildren pay for future education costs.

There are no federal income tax benefits for contributions to 529 savings plans, but 529 plan earnings are not subject to income and capital gains taxes as long as the funds are used for qualified education expenses. Qualified education expenses include tuition and fees and books. If grandparents are still working, being able to deduct some or all 529 plan contributions on state tax returns is a nice perk. Yes, grandparents can claim the deduction for contributing to a 529 Savings Plan for a grandchild if they live in one of the 34 states that offer a state income tax deduction for 529 college-savings plan contributions. Some require you to own the account and some allow you to contribute to one set up by the child's parents.

No longer just for the young, 529 Savings Plans can be used for the young at heart. So when setting up a plan for your grandchild, set one up for yourself as well. There’s generally no beneficiary age limit for contributions or distributions. Many mid-life adults may enroll in school mid-career to acquire new skills or change industries. Surveys show that Baby Boomers want to stay active in retirement and round out their knowledge or learn a language. many Seniors may even take music appreciation courses in their golden years. If you think you might go back to school in the future, the 529 is a great savings vehicle that you can use.

If you don’t take classes, or have money left over that you don’t use, you can transfer what’s left in your 529 plan to another beneficiary — a child, grandchild, niece or nephew. Should you decide to withdraw any funds to pay for non-qualified expenses, you will owe tax on the earnings plus a penalty. A 529 Plan just might encourage you to take that class you’ve been dreaming about. And we all know that learning something new is good for your brain and may lower your risk for dementia.

Till Next Time!

Irv Seldin, JD

CEO and Owner, Visiting Angels of the Palm Beaches