How to set up a 529 Plan for Grandchildren
If you want to help with your grandchild’s college costs, a 529 plan is a good option.
These state college savings plans have significant tax advantages.
Your contributions grow tax-deferred, and withdrawals are tax free as long as the money goes toward qualified higher education expenses such as tuition or books.
In more than half of states, if you use your state’s 529 plan you can deduct at least a portion of your 529 contribution on your state income tax return.
To keep control of the account without jeopardizing future financial aid, you have a few options. You can retain ownership of the plan until right before your grandchild takes a distribution and then switch it to your children.
The best option is to focus on a 529 plan with low fees that has an age-based asset allocation that mixes an all-stock fund, such as a S&P 500 fund, with a fund that has no risk of loss to principal.
Or, you can elect to manage the funds yourself. Typically, you invest less aggressively the closer your future college freshman is to starting classes, and more aggressively when they are younger. While you do not receive a federal tax deduction for the funds invested, if you live in the state that issues the plan, you may see a state income tax benefit.
Some states offer plans that allow you to pay the cost of a current tuition credit, and guarantee your payment made today will cover that credit when the beneficiary (your grandchild) needs it. As long as the funds are used for education, no income taxes are paid.
The state you choose for your 529 plan matters .
One important consideration is who will be the custodian of the plan for the minor child. Many grandparents choose their children (the parent), rather than themselves.
Regardless of who is chosen to be the custodian, it is recommended that the grandparent choose a 529 plan domiciled in a state that offers asset protection, so if they chose their child as custodian, and their child files for bankruptcy, or is sued, the funds are protected from creditors.
Many states, but not all, offer this protection.
You do not need to be a resident of the state where the 529 plan is domiciled, so choosing a state with credit protection is recommended regardless of where the grandparent lives.
529 Plan Financial Advisor Buffalo NY
Because there is much to assess and understand, get a financial advisor to weigh in on which plan is best for your situation or whether you should go forward with a 529 plan for your grandchild at all.
Contact Mintco Financial at www.MintcoFinancial.com
Call us with your questions or schedule a meeting at 716-565-1300
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