Estate Planning in New Jersey: Should I Set Up a 529 Plan for a Child or Grandchild?
The cost of college continues to rise. Given that many parents, grandparents, and other close loved ones want to provide access to affordable advanced education for children, a 529 plan can be a great tool. You may be wondering: Is a 529 plan the right choice for my situation? The answer depends on several case-specific factors—though it does allow for tax-advantaged gifts when used properly. Here, our New Jersey estate planning lawyer provides an overview of 529 plans.
529 Plan: Defined
As explained by the Internal Revenue Service (IRS), a 529 plan is one name for a qualified tuition program. It is a tax-advantaged plan designed to encourage saving for future education costs. These plans are generally sponsored by states and state agencies. New Jersey and New York both offer multiple different options for 529 plans.
The Three Main Benefits of Using a 529 Plan
Should you set up a 529 plan for a child or grandchild? If you have the financial resources to do so, it can be a cost-effective way to leave funds directly for the support of their education. Here are the three main benefits of using a 529 plan as part of an estate plan:
- Tax Deferred Growth (Bigger Benefit): First and foremost, contributions made to a 529 plan grow tax-deferred. Any investment gains are not subject to federal and, in New Jersey, state taxes. That is true as long as they remain in the plan. Why does this matter? It allows the funds to grow faster than they would in a taxable account, where gains could be reduced annually by taxes. Tax-deferred growth can significantly increase the total amount available for educational expenses.
- Ability to Provide Benefits Without Tax Liability: Distributions from a 529 plan for qualified education expenses, such as tuition, books, and room and board, are completely tax-free at the federal level and often at the state level as well. When the money is withdrawn to pay for college or other eligible costs, it does not incur income taxes,
- Control Over the Assets Within the Plan: Account holders of a 529 plan maintain control over the investments and can decide when and how much money to withdraw, as long as it’s for an eligible beneficiary’s education-related expenses. The control includes the ability to change the beneficiary to another family member without penalty. Until funds are actually withdrawn, you retain full control over the 529 plan that you set up and funded.
Consult With Our New Jersey Estate Planning Lawyer for Parents and Grandparents Today
At Poulos LoPiccolo PC, our New Jersey estate planning attorney is a solutions-focused advocate for clients. We work with parents and grandparents to develop comprehensive plans. If you have any questions about using a 529 plan as part of an estate plan, please do not hesitate to contact us today. Our firm is proud to provide estate planning services throughout all of New Jersey.
Source:
irs.gov/taxtopics/tc313
