Help Future Generations Cover the Cost of College
Once retirement goals are being met, it isn’t uncommon for grandparents to make preparing for their grandkid’s futures a part of their financial planning. There are many ways to help grandchildren out financially, from paying for music lessons or purchasing new clothes and shoes before the new school year.
Paying for college, however, has long-term benefits for grandchildren, since a college degree increases earning and employment potential. Using a 529 Educational Trust as a means of saving has its own specific benefits since these accounts allow interest to build over time, come with no tax penalties and can be used for college or private school costs.
Interest Builds Over Time
Using a 529 Educational Trust, instead of a conventional savings account, to start putting away money for a grandchild’s education is a financially lucrative choice because of typically high-interest rates of more than double what you could earn with a traditional savings account. This is especially beneficial for grandparents with young grandchildren because interest can build over time and this increases the total savings once the child has reached college age.
No Tax Penalties
According to the Internal Revenue Service, 529s are operated by states or educational institutions. These plans come with specific tax advantages to entice individuals to save for college tuition.
Specifically, interest earned in a 529 account isn’t subject to federal taxes. When the time comes to use the funds in the account, students will not be taxed just so long as the income is used for qualifying expenses. It’s important to note that grandparents should be aware that contributing over $14,000 a year to one student’s account could result in paying a gift tax.
Good for College or Private School
While a 529 Education Trust was originally created as a means of saving for college tuition, in 2018 that changed. Now, as much as $10,000 can be used each year to cover expenses related to elementary and high school education in both private and public school settings.
If a grandchild doesn’t use the funds for college, you can withdraw them but the funds will then be subject to federal taxes and a 10% penalty.
If a grandchild dies or becomes disabled, or they are able to qualify for a full scholarship, the penalty may be waived.
A 529 Educational Trust is set up with a specific beneficiary in mind, which is the student who will be using the accounts. When the time comes to write that first tuition check, you can be certain your grandchildren will be grateful for your generosity.
~ Here’s to Your Financial Health!
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