529 Plan Details:
Enter your state:
World's Simplest College Calculator:
How old is your child?
Find a 529 Pro:
Enter your zip code:
Enroll In a 529 Plan:
My estate planner tells me I can reduce my estate by paying my grandchildren’s tuition and not even have to worry about the gift tax. So why should I use 529 plans?
Your planner is correct in saying that the payment of tuition by you directly to a school is not considered a gift. (The school can be any educational institution, not just college.) If you have ways to utilize your $14,000 annual gift exclusion other than through contributions to a 529 plan or Coverdell ESA, the direct payment of tuition can be an effective tool for further reducing your taxable estate.
If you are not currently utilizing your $14,000 annual exclusion, you should understand the advantages of funding a 529 plan now and not waiting until your grandchild has tuition bills to pay. For one thing, you remove any risk that you will die before the money can be removed from your estate through direct payments of tuition. For another, the gift tax exclusion for direct payments applies to tuition but not to other costs that can be covered by 529 plans such as room and board, books, supplies, and equipment. Finally, be aware that the school is likely to treat your direct payment of tuition as a “resource” that reduces financial aid awards on a dollar-for-dollar basis. With a 529 plan, you can request that the withdrawal be made payable to the student, not to the institution, and this may (depending on the policies of the institution) lead to a better financial aid result.
- How can I select the right 529 plan if I don’t know where my grandchildren will be attending college?
- What happens if I have money in a 529 account for a grandchild who later decides to not attend college?
- I would like to put some money towards my grandchildren’s college savings, but I’m worried about unplanned medical expenses or other financial needs I may have later on. Can I get my money back out of a 529 plan?
- Which investment option in the 529 plan should I choose for my grandchild?
- We have 16 grandchildren below college age. Should we set up a separate 529 account for each of them, or can we combine the savings into just one account?
- Instead of opening my own 529 accounts, can I just make contributions to the 529 accounts my children have already established for my grandchildren?
- How do Coverdell education savings accounts compare to 529 plans?
- If I ever need to go to a nursing home and apply for Medicaid benefits, will the 529 accounts I have set up for my grandchildren be counted as part of my assets?
- What happens to my 529 plan if I die or become incapacitated?
- Am I hurting my grandchild’s eligibility for financial aid by putting money into a 529 plan for him?
- My tax adviser is recommending 529 plans as an estate-planning vehicle. What is the advantage?
- I’ve been making direct gifts to my grandchild each year into a custodial account (UTMA) with the understanding that those funds are to be used for college. Is there anything wrong with this approach?
- My estate planner tells me I can reduce my estate by paying my grandchildren’s tuition and not even have to worry about the gift tax. So why should I use 529 plans?