-
An excerpt from a Fidelity article:
Key takeaways
Beginning in the 2024–2025 academic year, grandparent-owned 529 plans will not be considered to be student income.
It's possible to make up to 5 years of annual gifts to a 529 all at once.
Depending on the circumstances, an irrevocable trust may be able to open and own a 529 plan, potentially reducing exposure to taxes.
The recently passed SECURE 2.0 Act provides a new option for withdrawing 529 funds penalty-free.
While 529 plans may seem relatively simple on the surface, there are some important nuances to consider if you want to make sure you're getting the most out of your contributions. Recent legislative changes have opened up new opportunities, and some lesser-known techniques may be able to help you enhance your growth potential and save more on taxes.Good news for students with generous grandparents
Traditionally, distributions from grandparent-owned 529 plans were considered student income, which could lead to a reduction in the amount of financial aid a student would receive. Starting in the 2024–2025 academic year, however, the Free Application for Federal Student Aid (FAFSA) will no longer consider such distributions to be student income. This change will eliminate what has long been known as the "grandparent trap," and means that grandparents can feel free to assist with education funding without having to worry that their help might have an adverse effect on their grandchild's application for federal financial aid.Accelerated gifting with your 529
Unlike a payment made directly to an educational institution, a contribution to a 529 plan is considered a taxable gift—unless, that is, the amount contributed is lower than the annual gift exclusion. In 2023, that amount is $17,000 for an individual, or $34,000 for a married couple splitting the gift.However, there is a unique feature of 529 plans that would allow contributions made in a single year to be spread out over 5 years for gift tax purposes. Known as "accelerated gifting,"* this allows particularly generous parents or grandparents to deposit a substantial amount of money all at once, giving the funds a greater opportunity to grow over time.
As always, this just a brief excerpt of a bigger article. Always consult with your financial advisor and attorneys before making any money moves.
-
The accelerated gifting provision has been there for a long time. We used it when the boy was born since it was clear the market was at a low (2009).
Every dollar we put in in 2009 is worth maybe $4-5 today. As a result I was done funding it by the time the boy was 9 or so. Right now it’s unlikely he’ll spend it all, even if he gets a PhD - he’s 13 and his college fund is overfunded.
When he’s done we’ll probably change the beneficiary to my niece’s kid for the residual amount.
-
My niece had her baby just last August - I tried to convince them (and my sister) to front load as much as they can into the 529 given where the market is. I stayed under the single year gift tax limit, but gifted them far more than I would have had the market been like 2019. I’ll probably do it again this xmas or maybe on her birthday.
-
You have that much confidence in this market or you're just considering the overall long-term outlook?
-
You have that much confidence in this market or you're just considering the overall long-term outlook?
@Jolly It’s like in 2009 - I wasn’t sure that it wouldn’t go lower in the near term - but I was confident that it would look cheap 18 years down the road. I feel the same about today.
This girl will be the class of 2040!
-
@Jolly It’s like in 2009 - I wasn’t sure that it wouldn’t go lower in the near term - but I was confident that it would look cheap 18 years down the road. I feel the same about today.
This girl will be the class of 2040!
@Jolly It’s like in 2009 - I wasn’t sure that it wouldn’t go lower in the near term - but I was confident that it would look cheap 18 years down the road. I feel the same about today.
This girl will be the class of 2040!
Yeah, I’ve maxed out my 401K contributions over the last 2 years, and have invested a bit into the market directly. I wasn’t in a position to capitalize on 08-09, so am piling it on now.
