While the 529 plan was created to help families save for college, it can also help you protect assets and lower your tax bills. And anyone can donate to it. Here’s what you need to know:
Education and Cash Gifts
When it comes to taxes, any contribution to a 529 plan is treated the same as a cash gift. However, you can give more at one time without triggering the gift tax. Individuals can put up to $65,000 in a 529 plan in one year; a married couple can contribute double, or $130,000. The IRS treats either donation amount as if it were given over a five-year period instead of just one year.
Grants and Financial Aid
If you won’t be donating enough to cover the full cost of a college education and the beneficiary will likely need financial aid, a 529 plan could potentially decrease the amount of aid they would receive.
Tax Considerations and Taxes
A few caveats: any additional money you give to 529 plan beneficiary over that five year period will not be tax-free. And if you die before the five years period is over, the IRS will deduct $13,000 from your taxable estate for every year you were alive during that five-year period.
Special Education Trust
There are ways to define the trust and provisions that will not eliminate potential grants or decrease the amount of aid they would receive. Special language is required. A Private Asset Trust can accomplish this.