Providing for grandchildren's college expenses is becoming an important estate planning goal for many families. Many people see it as one of the best ways to contribute to the overall health of future generations. 529 college savings plans are a very useful tool to accomplish this goal, but only if you know what they are and do not have misconceptions about them.
529 savings plans are very simple investment tools. However, they are very powerful tools, too. Done right they can help one person provide funds for someone else to afford higher education, oftentimes parents or grandparents helping their younger family members.
These savings plans are an important part of many modern estate plans as they provide the necessary education funds when they are needed. Nevertheless, many people have many misunderstandings about these plans.
U.S. News and World Report recently published a list of these common misunderstandings in an article titled "8 Common Misconceptions About 529 Plans."
The list of misconceptions includes:
- Am I limited to my own state's plan? – 529 plans are administered by the states. However, you do not have to use your state's plan. You can use any state's plan that best suits your needs.
- Is my income too high to contribute? – While some college savings plans do have income limits, 529 plans do not.
- Is my money lost if my child does not use it? – If the intended beneficiary of the plan does not use the money because they do not go to school or receive scholarships, the plan can be transferred to another beneficiary without penalty.
- Is the money only good for four-year schools? – The money in 529 plans can be used for any postsecondary education.
- Must my beneficiary be below a certain age? – There are no age limits on 529 plans.
- Will the plan hurt my beneficiary’s financial aid eligibility? – This can be true in some cases as the rules for financial aid are complicated. However, they can be worked around.
If you would like to make a 529 plan part of your estate plan, contact an experienced estate planning attorney to talk about it.
These plans might benefit your family and be better than other ways to provide for the education of younger family members.
Reference: U.S. News and World Report (November 24, 2014) "8 Common Misconceptions About 529 Plans"