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FUNDING EDUCATION EXPENSES by Allison Wilson

It is no secret that one of the joys many people prioritize in retirement is spending more time with family, especially grandchildren. Providing financial support for family in a variety of forms is also common for many retirees. Many grandparents supplement childcare or plan and fund family vacations for their children and grandchildren. A 2019 study from AARP found that 21% of grandparents have also helped to fund a grandchild’s education costs. If you find yourself among this generous group that values education and wants to provide a way to pay for school or college expenses, a grandparent-owned 529 may be right for you.

Consider these benefits of gifting through a 529:

• Control – When you open a 529 you maintain control of the account. Beneficiaries can change multiple times, flowing from grandchild to grandchild, funding education expenses along the way.

• Tax Advantages – Contributions to a 529 plan have the potential to grow tax-free if used for qualified expenses. You can also “superfund” a 529 with up to $75,000 (five times the annual gift tax exclusion) if removing the money from your estate faster needs to be a consideration.

• Flexibility – The uses of a 529 have expanded in recent years. For example, you can spend up to $10,000 on K-12 private tuition. Qualified expenses for college go beyond tuition to include items like books, technology and supplies. In some cases, funds in a 529 may be used to pay for room and board. Money in a 529 can also be used to pay for graduate school, qualified apprenticeship programs and even study abroad programs, if certain conditions are met.

Whether your goal is to open accounts for individual family members, create a family legacy fund for education, or get ahead of potential estate tax changes, Community Wealth Advisors – Raymond James can help. Contact Allison Wilson, Financial Advisor, at 972-521-8282 to learn more about 529 plans and other accounts designed for minors. Take action to position the next generation for educational success!

*Earnings in 529 plans are not subject to federal tax and in most cases state tax, as long as you use withdrawals for eligible education expenses, such as tuition and room and board. However, if you withdraw money from a 529 plan and do not use it on an eligible education expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover education costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. An investor should consider, before investing, whether the investors or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Such benefits include financial aid, scholarship funds and protection from creditors. The tax implications can vary significantly from state to state.


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