Grandparent-Owned 529 Plans

A new grandchild is an exciting and momentous addition to your family and to your legacy. Instead of lavishing gifts of clothing or toys that are soon outgrown, why not invest in something that will grow with them? A 529 plan is a state-administered, tax-free savings plan to help pay for education, with the option to convert some into a Roth IRA for your grandchild should they not have education expenses.

Every state’s plan is slightly different, but they are generally a great vehicle for long-term education saving, with special benefits for a grandparent-owned 529 plan.

Here are a few considerations:

1. Benefits and Plan Rules.

a. Tax-free withdrawals. As long as you’re paying for qualified education expenses, gains are tax-deferred, and withdrawals are tax-free.

b. Some states, like Georgia and South Carolina, grant deductions on the contributor’s income tax.

c. Some states, like Georgia and South Carolina, also allow distributions for K-12 expenses.

2. Contribution limits and state tax deductibility: Deductions and contributions vary by state and many states don’t require you to be a resident to open a 529.

3. Unused funds are portable. If the child doesn’t attend college, you can change the beneficiary to another family member and/or roll the 529 into a Roth IRA (subject to limitations).

4. 529 assets are usually used in calculating a student’s need-based financial aid. However, under a new rule for 2024, if the plan is owned by grandparents, distributions no longer count as income of the student.

5. High-net-worth grandparents* can also take advantage of the ability to gift up to five years of the current annual gift exclusion into a 529 without reducing their lifetime unified credit.

Most 529 College Savings Plan providers offer age-based, target date funds as an alternative to building your own portfolio. Asset Advisors welcomes the opportunity to evaluate how this type of investment can play a part in your overall financial plan.

Give us a call today at 706-650-9900 to discuss your options.


*Note: A 529 plan is not the only way to help pay for your grandchild’s college. Direct payments to educational institutions are one of the few transfers not included in the annual gift exclusion.


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