529 Plans are a wonderful asset that doesn’t’ get enough credit. It is the ONLY account that you can control AND have it not included in your estate.
It’s amazing actually.
But most people seem to just see it as a way to help little Jonny for college. Yet, as of the new tax bill, 529 plans have expanded in potential. So much it can’t be overlooked.
The growth is tax free IF, yes IF, used for qualified educational expenses which no longer is solely higher education. You can use 529 plans for private school now, college or high school or whatever.
529 plan assets are NOT included in the FAFSA for student loans either. Distributions are, be advised, but even those distributions can be planned for. In fact, I’d argue don’t even take a distribution until the kid no longer will apply for financial aid.
529 plans have gift tax benefits too. I won’t go into those here, i do in the video, but gift tax concerns are SO overblown for the VAST VAST majority of people it’s not even worth typing the words, actually.
Worst case scenario is that grandma funds a 529 with say $75,000. It grows the $100k and it turns out she is in bad shape and actually needs the money.
She still controls it, remember, so she takes a distribution to pay for fixing up her home to put it on the market.
She will pay tax and a 10% on that 25k gains. No tax or penalty on the principal. ANd that’s it.
That is literally the worst case scenario. Yet the best case scenario is the entire amount grows like a weed, is tax free, she still controls AND it’s out of her estate.
No other account has that same level of flexibility. None.
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