One of the most effective ways to save for education-related expenses is through a 529 plan. However, recent legislation made significant changes to how 529 plans can make saving for college even more advantageous for families.
The SECURE Act (passed last year) now allows 529 funds to be used to pay back student loans and expenses related to apprenticeship programs which are common in a variety of fields.
The Consolidated Appropriations Act made changes to how 529 plan contributions impact need-based financial aid. Currently, distributions taken from a grandparent-owned account and used for education expenses must be shown as income on FAFSA (Free Application for Federal Student Aid) applications.
The new FAFSA questionnaire, which will be in effect for the 2023-2024 academic year, no longer requires students to disclose cash support. This allows grandparents to contribute to their grandchildren’s education without affecting eligibility for need-based financial aid.
529 plans offer grandparents gifting and estate planning benefits. Contributions to plans are considered gifts and are removed from the owner’s taxable estate, but the owner maintains control. Contributions can be front-loaded in the amount of five times the annual exclusion, $75,000 for individuals and $150,000 for joint filers, and made in a single year without gift tax as long as no other contributions to that beneficiary are made during the five-year calendar period. This can be done for as many beneficiaries as the contributor desires.
WOULD THIS BE A SUITABLE STRATEGY FOR YOU?
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