529 Plans

Tue, Mar 17, 2015

Debt Mitigation, Estate Planning

 Some rights reserved by Sean MacEntee529 plans are one of many ways to save for college. This type of plan is usually run by the state, but they may be used out of the home state. This is something many find to be an advantage over programs like the Florida Prepaid College Fund or similar program for other state universities, since transferring is often easier and less money is lost in the transfer. However, of note is that sometimes a prepaid college fund might make more sense in certain situations and the final costs can often be curbed by the prepaid college funds. This is something to discuss in-depth with a financial advisor.

Something you may not know is that a 529 plan can be started before a child is even born. The account is first set up with the potential parent’s name as beneficiary and then once the child is born it is transferred over to the newborn’s name as beneficiary. This is a great way to get a jump start on saving, the savings can only increase.

529 plans work in some ways similarly to a Roth IRA. Your contributions are not deducted from your income for tax purposes, but instead you pay with after tax dollars and the earnings are tax-deferred when used for education.

Something to keep in mind is that the money in a 529 plan in a parent’s name is counted on the FAFSA, the financial aid application. Also, the form will take into account income spent from the 529. Be sure to discuss this impact with your tax professional and/or financial advisor to understand it.

Florida offers a 529 plan and a prepaid college plan. The Florida 529 plan offers many different types of investment opportunities and various ways to contribute money. This link to the 529 plans describes some of the options available and how the plan works. Of note is that the website even offers up the idea of doing the prepaid plan and the 529 plan together, as the 529 plan can pay for books, computers, and room and board if you have the prepaid plan to go towards tuition. This link talks about all the various prepaid options available, many have been added over the years.

Please note that Florida prepaid plans have an open enrollment period, whereas the 529 plans are available all year round. This is another important consideration when deciding between the two. You don’t want to miss the enrollment period, but if you do–Should you open what you can? That’s a personal decision but something to keep in mind. Also make sure you explore all the prepaid options, as some cost much more than others. They are working to tailor it towards different budgetary considerations.

The Uniform Gift to Minors is another way to transfer assets to a child for many reasons, including education, but the control the parent has over this money is a little different. In addition, what the money can be used for differs too. This article discusses some of the differences between the Uniform Gift to Minors and the 529 plan. As you can see in the article, there is much to consider when deciding between the two choices. Both can affect financial aid differently and the tax implications are varied.

Attorney Christopher D. Smith, Sr. is designated a Board Certified Consumer Bankruptcy Lawyer by the American Board of Certification.  SmithLaw is located in Lakewood Ranch, Florida.  Attorney Smith concentrates on bankruptcy, civil litigation, probate, estate planning, and elder exploitation cases in the Sarasota and Bradenton area.  Call 941-202-2222 to learn more.  SmithLaw offers free consultations in certain areas, including consumer bankruptcy, probate, and personal injury matters.

Image: Some rights reserved by Sean MacEntee


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