Looking for the perfect Christmas gift for a child or young adult? Here’s an idea: give them a good education. Parents and relatives are already educators. One way older generations help educate younger generations is by sharing wisdom and providing guidance and emotional support. Another way to teach is by funding a 529 Education Savings Plans to help with the costs of K-12 school fees, college fees and some types of internship costs, savingforcollege.com reported.
529 Education savings plans have long been an attractive way to finance education. Typically, after-tax contributions to the plans are invested and any gains are tax-deferred. If benefits are used to pay for qualified education expenses, they may be tax-free.
These plans had a drawback: qualified benefits from 529 plans not owned by the mother were treated as untaxed income of the beneficiary. Since a student’s income plays an important role in determining a student’s eligibility for financial aid, a non-parental 529 plan benefit had the potential to increase the amount of financial aid a student receives. received by 50 percent, Kiplinger reported.
However, the Consolidated Appropriations Act included a simplification of the Free Application for Federal Student Aid (FAFSA). As of the 2024-25 school year, benefits from 529 third-party-owned plans will no longer be treated as untaxed income, so a student’s financial support remains unaffected.
529 plans can also be effective real estate and gift planning tools. From a planning perspective, contributions to 529 accounts are gifts to the beneficiary. In 2022, the annual gift tax exclusion, per donee, is $16,000. So a 529 plan account owner could contribute to that amount without levying gift taxes. Alternatively, the IRS allows larger contributions to be made up front and treats them as if the amount was contributed over a five-year period, with no gift tax.
If you would like to find out more or provide an education for a child, please contact us.
Weekly Focus – Think about it
“Every child deserves a champion—an adult who will never give up on them, who understands the power of connection and insists that they become the best they can be.”
—Dr. Rita Pierson, educator