Tags: Retirement | 529 plan | grandparents guide | investing

A Grandparents' Guide to Investing in 529 Plans

By    |   Tuesday, 05 May 2015 11:44 AM

One popular vehicle for making contributions to a family member's future is the 529 plan. The gift of education may be the greatest and most long-lasting gift of all, and many grandparents choose to make financial gifts to help their grandchildren through college.

Here is a primer about these plans for grandparents considering an investment:

• The 529 plan is run by a state or an educational institution and is specifically designed to offer tax advantages to individuals who choose to invest in education, usually for a child or other family member.

Free Retirement Calculator: When Can You Retire? — Click Here to Find Out

The Internal Revenue Service says such plans offer "tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary."

• The plans set up by states can offer significant advantages, sometimes coming with "a state tax deduction, a matching grant, and scholarship opportunities, protection from creditors and exemption from state financial aid calculations, for investors who invest in 529 plans offered by their state of residence," reports the College Savings Plans Network.

• CSPN says there are two types of 529 plans, the pre-paid tuition and the savings plans, and the organization's website offers a list of plans available in different states. The 529s that function as pre-paid tuition are sometimes called guaranteed savings plans, and they freeze tuition at current rates for the beneficiary.

While these plans can offer positive benefits, The Wall Street Journal says some people avoid them because they "generally only work for in-state, public universities."

Savings plans earn interest based on the investments that back them up, usually mutual funds, reports CSPN. These plans are only offered by states, while the pre-paid tuition plans can be offered by universities, also.

• Because 529 plans are often administered by states, people sometimes believe the child or grandchild would have to attend an in-state school to make use of the funds. That's not true, according to U.S. News & World Report.

Although there may be additional benefits to investing in your state plans (like decreased tuition fees for in-state schools or extra savings for residents), you can invest in any state's plan.

"Most of our clients are in California, and California doesn't offer that deduction, yet most people invest in the California state plan," says James Dowd, managing director at a California advisory firm, as reported by U.S. News.

How Soon Can You Retire? Free Test Shows You When — Click Here

"Quite frankly, it's not one of the better plans that's out there, so we often find there's an opportunity to get a better option for clients in getting them out of the state plan where they're invested."

• Another issue with 529 plans, according to U.S. News, is that people sometimes confuse them with other educational savings vehicles out there and think they can't invest because they make too much money. There are no income limits on 529 plans, and they actually can be a smart investment.

"Total 529 plan contribution limits are set by the states and can be as high as $380,000," reports U.S. News.

"However, to avoid gift tax consequences, federal law allows single taxpayers to contribute up to $14,000 in one year or make a lump-sum contribution of $70,000 to cover five years. Married couples may contribute as much as $28,000 per year or $140,000 as a lump sum."

• "It's not limited to $5,500 if you're under 50 like it is with an IRA," says Lindsey James, managing partner at Houston's LJK Financial, as reported by U.S News. "We talk about this a lot with our higher-net-worth clients. It can be something really beneficial for grandparents. The husband and wife, together, can put in $28,000 for one grandchild, $28,000 for another, so it can be a way to get some money out of your estate."

• For grandparents interested in setting up a 529 plan to help fund their little darling's educations, there are sites, like SavingforCollege.com, that allow you to see assessments about how all 529 plans are doing.

A financial adviser also can help wade through the rules and regulations to figure out the way to get the best investments to pay for college.

An Extremely Simple Way To Determine If You're Ready To Retire — Find Out Now

© 2017 Newsmax. All rights reserved.

 
1Like our page
2Share
FastFeatures
One popular vehicle for making contributions to a family member's future is the 529 plan. The gift of education may be the greatest and most long-lasting gift of all, and many grandparents choose to make financial gifts to help their grandchildren through college.
529 plan, grandparents guide, investing
725
2015-44-05
Tuesday, 05 May 2015 11:44 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
America's News Page
© Newsmax Media, Inc.
All Rights Reserved