With higher education costs outpacing inflation by 5-6% per
year, and the average cost of a four-year public school at nearly $20,000 per
year (double that for private schools) it’s no surprise that many parents and
grandparents are deeply concerned about how they will pay for higher education.
Many of these clients are similarly concerned about estate planning.
commonly known as a 529 plan (named after the Internal Revenue Code section
that creates them). Contributions to 529 plans are generally not subject to
gift, estate or GST tax, gains are not subject to income tax if used for
qualified higher education expenses (QHEEs), and these assets are not owned by
the student for financial aid purposes, making them an excellent tool for
saving for college.
529 plan by contributing five years’ worth of gift tax annual exclusions
(currently $13,000 per year, or $65,000 per person) free of gift and estate tax
as long as the contributor lives at least five years. Thus, a married couple
can contribute up to $130,000 per child or grandchild!
used for QHEEs and there are generally limited investment options, similar to
mutual funds. There are also high fees with some state’s 529 plans, so it’s
worth some research. An excellent resource in this area is the website savingforcollege.com.
state income tax: is the client eligible for a state income tax deduction for
investing in his or her state’s 529 plan?
estate planning is Pros, Cons Of 529 Plans For Sophisticated,
Affluent Parents, available online at http://news.investors.com/Article/600061/201202031828/strengths-and-weaknesses-of-529-plans.htm.
If you have questions, speak with an estate planning attorney near Palo Alto, California and Menlo Park, California.
