How to Pay for Your Kids’ College

College graduationGiven the rising cost of most college tuition, the complexity of college loan agreements and the difficulty for most middle-income families in simply maintaining their budget for ordinary daily household expenses, planning for your children’s college education is an important topic to consider at the earliest possible stages of a child's development. Fortunately, an established method of helping to accomplish this goal is the 529 college savings plan.

The Legal Intelligencers recent article titled “529 College Savings Plans: How They Work explains that the 529 college savings plan is a way to save and set aside money specifically for the purpose of funding higher education. It’s a tax advantaged investment program that’s designed to help you fund future qualified education expenses. The benefits are that it offers flexibility, control, and tax advantages—plus it’s available to anyone who wants to make contributions for qualifying higher-education expenses without income limits (like Grandma or a favorite uncle!).

The 529 owner keeps control of the assets and is allowed to choose how much and when money can be withdrawn. The owner can also change the beneficiary to a different family member related to the original beneficiary (see your estate planning attorney for the rules on this) whenever they like, and the investment allocation can be adjusted once a year.

You can also enjoy some federal income tax savings with a 529 plan because the account can grow tax free. But contributions are not deductible. Any withdrawals from the 529 made expressly for qualified higher-education expenses are also federal income tax free, but non-qualified withdrawals will be hit with regular federal income tax plus a 10% penalty.

One other feature of a 529 plan is that it can also be effective in estate planning. A 529 savings plan can decrease future estate taxes, as up to $14,000 of the annual gift tax exclusion per contributor can be taken when transferring assets to a child or grandchild (or up to $70,000 with a five-year election). When the assets are deposited in the 529 plan, the law says they are viewed as being removed from the account owner's estate, even though that owner still has control over the distribution of the plan itself.

Talk with an experienced estate planning attorney because there are many options available and your participation in a 529 plan doesn’t guarantee that the contributions and investment returns will be enough to cover higher education expenses. Contributors assume all investment risk, including the potential for loss of principal, and any penalties for non-educational withdrawals. Your state may offer state tax advantages to residents who participate in the in-state plan.  Again, speak to an experienced estate planning attorney to find out more.

You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.

Reference: The Legal Intelligencer (March 3, 2015) 529 College Savings Plans: How They Work

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a comment


We have a LOT more where that came from!

We hate spam too. We will never share or sell your information.

Call Now ButtonCall Us Now https://jsfiddle.net/7h5246b8/

Request a free consultation

We hate spam too. We will never share or sell your information.

We've been putting together as many resources as possible so that we can continue to help:

  • If you’re a current client with a signing appointment or a prospective client with a consultation and would prefer that meeting take place in your own home, we can accomplish that with a little bit of pre-planning on our part and with the addition of a laptop, smartphone, tablet or other computer in your home to facilitate this virtual meeting. For those of you that need to sign legal documents, that too can be accomplished with the use of a webcam (FaceTime etc.), so that we can witness and electronically notarize all of your important legal documents.
  • We launched the rollout of our on-demand webinar early so that new clients and our allied professionals can view the important component parts of ‘an estate plan that works’ at their convenience.  That is available on our website.
  • Live video workshops will be produced as quickly as possible and certainly ahead of our previous schedule; we will keep you posted as these events become available. Given the ‘boutique’ nature of the firm, we rarely have more than ten people in our office including team members at any one time. During this period of ‘social distancing,’ we promise to have no more than 8 people at any time.   This allows us to comply with the Governor’s directive to limit in-person gatherings.
  • The best way to communicate with us is still by phone during regular office hours of 8:30 to 5:00, Monday through Friday, or, you can email any of our team members (that is, their first name followed by @zarembalaw.com).  We will respond to these emails as quickly as possible.
  • Please continue to follow the directives of our local, state, and federal agencies. For your health and in consideration of our team who is assisting you, if you’ve scheduled an office appointment or planned to drop off paperwork and are experiencing a fever, dry cough, or shortness of breath, please contact your primary care doctor for guidance and then our office to reschedule.

Thank you, Walt and the Zaremba Team

Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.