By: Joel R. Aberth
How will my grandchildren pay for college?
Silly question – with your help of course!
How can I establish the help now when I don’t know if I’ll be around when they go to college? What methods are available? How can I control the funds if they don’t go to college?
A popular method of addressing all those questions is to establish a “529 College Savings Plan.” This Plan has a lot of attractive features and is easy to set up. You don’t need to create specialized trust documents or surmount other complications which would require involvement of lawyers and accountants. Your banker or your investment manager will open a 529 Plan Account for you with as little as $25.
Some important features of a 529 Plan are as follows:
A.) TAX FREE – The account grows tax free (Federal and State) and withdrawals are also tax free (Federal and State) if used to pay for higher education costs. NOTE: If not used for higher education expenses, the earnings on withdrawals may be subject to income tax and a 10% Federal tax penalty.
B.) STATE INCOME TAX DEDUCTION – Your annual contributions to the “College Advantage 529” are eligible for an annual deduction up to $2,000 per beneficiary from your State of Ohio taxable income in the year made.
C.) NOT INCLUDED IN FEDERAL ESTATE TAX – If your estate is large enough to require filing a Federal Estate Tax Return, the value of the Plan is not included.
D.) CHANGING BENEFICIARY – You may transfer the account to a different beneficiary at any time as long as the new beneficiary is an eligible family member of the original beneficiary.
E.) FINANCIAL AID – Funds invested in a 529 Plan are considered to be an asset of the account owner. If the parent is the account owner, on average, about 5.64% of the value of the account is considered in determining federal financial aid.
F.) LIMITATION ON SCHOOLS – The funds can be used at any accredited school in the United States, 2 year, 4 year, technical, graduate or professional.
G.) WHO CAN PARTICIPATE? – Under the Ohio Plan, anyone – parent, grandparent, or friend can own an account or contribute to another account.
H.) AGE LIMIT – Contributions can be made for a beneficiary of any age.
What about Gift and/or Estate Tax on your contribution to the Plan? Generally, the account value isn’t included for Federal Estate Tax purposes regardless of the size of the estate, and the State of Ohio no longer has an estate tax. Further, with the Federal Unified Gift and Estate Tax threshold at 5.25 million, and an annual exclusion of fourteen thousand per person per year, generous funding of the Plan can be accomplished. A married couple can double those numbers.
If you find the above information helpful and you want to know more, we invite you to call your Attorney at Stark & Knoll.