By Joseph E. Balmer   |   June 16th, 2018

The 529 plan Is An Excellent Estate Planning And College Planning Tool

529 planA 529 plan allows a parent, grandparent, other family member, friend or any other person to establishment a savings account for the benefit of any other person of any age who plans to attend elementary, secondary school and/or college regardless of the donor’s income.  The federal gift tax exclusion allows an individual to gift up to $15,000 per year ($30,000 per year for a married couple) with no gift tax consequences.  A donor can also give up to 5 years of gifts in one year. However, if the donor dies during the 5 year period, the amount allocated to years after the decedent’s death will be included in the donor’s gross estate.  The earnings in the account accumulate tax free and the withdrawals are federal income tax free as long as they are used at an eligible educational institute for qualified educational expenses.

These expenses include tuition, books, required school supplies, room and board and computers and related expenses such as internet and educational software.  The account can be used for thousands of educational institutions across the country-anywhere federal financial aid is accepted.  The account is similar to a 401(k) plan and has minimal effect on student financial aid eligibility.  The beneficiary can be changed at a later date as long as the new beneficiary is an eligible family member of the original beneficiary.  The 529 plan is an excellent estate planning and college planning tool.

New Changes Allow Greater Benefits For 529 Plan Contributors

A few changes in 2018 allow even greater benefits.  Effective January 1, 2018 the $2,000 state income tax deduction for 529 plan contributions has been doubled to $4,000.  This means that Ohioans can now deduct up to $4,000 per year from their Ohio taxable income.  This deduction is per contributor (or couple) per beneficiary per year with unlimited carryforward.  Also, effective January 1, 2018, qualified withdrawals for federal tax purposes have been expanded to not only include post-secondary schools, but now include up to $10,000 in tuition, per year, per beneficiary for enrollment or attendance at public, private or religious elementary or secondary schools.  This greatly expands the usefulness of the 529 plan as an educational savings tool.

The bottom line is that anyone who is concerned or interested about financially planning for their family’s future educational expenses needs to consider establishing a 529 plan.  One should sit down with a financial advisor to discuss in greater detail the benefits of a 529 plan and whether it fits into your budget and makes sense for you.

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Joseph E. BalmerAbout The Author: Joseph E. Balmer
Joseph Balmer manages the Probate, Trust and Estate Administration department at Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues, and has been certified by the Ohio State Bar Association as a specialist in Estate Planning, Trust and Probate Law since 2006.

Ohio’s 529 Educational Savings Plan – A Primer and Latest Updates
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