Why My Husband & I Opened 529 Plans For Our 4 Grandchildren & Their Future

When my children were younger, my parents and grandparents always purchased savings bonds for them: when they were born and on special occasions such as birthdays & holidays. As they got older and had expenses, these wonderful bonds helped pay for some of them. We so appreciated this gesture for our children.


However, when we had our first grandchild in 2017, my husband opened a 529 plan for her and we have continued to start and contribute for their future. What is a 529 plan you ask? A 529 plan is an investment account that offers a tax benefit when used to pay for qualified education expenses for a designated beneficiary. You can use a 529 plan to pay for college, K-12 tuition, apprenticeship programs and student loan repayments. If using a 529 plan to save for college, your savings will have a minimal impact on financial aid eligibility.


Here are the top 7 benefits of 529 plans, taken from savingforcollege.com.

  • 529 plans offer unsurpassed income tax breaks

  • Your own state may offer tax breaks as well

  • You, the donor, stay in control of the account

  • Low maintenance

  • Simplified tax reporting

  • Flexibility

  • Everyone is eligible to take advantage of a 529 plan

The other great thing about opening a 529 plan is that other family members can contribute to their family members' future. You would just need to share the information with them so that they can deposit funds into it as well.


What happens to a 529 account if it's not used?


If your grandchild doesn't go to college, receives a scholarship or if some other situation arises where you have excess funds — you have the following options for using the leftover amount in a 529 education savings account.


Transfer or roll over the funds

529 education savings plan accounts can be transferred from one beneficiary to another eligible member of the family or rolled over into other 529 accounts for the same beneficiary or an eligible family member. But, there are certain limitations:

  • Changes in beneficiaries are allowed free from federal (and generally state and/or local) income taxes — only among certain members of the beneficiary's family.

  • Only one income tax-free rollover of a 529 to a 529 for the same beneficiary is allowed per 12-month period.

  • Rollovers to ABLE accounts (tax-advantaged savings accounts available to benefit those who are disabled) are permitted, subject to ABLE contribution limits.

  • Rollovers from a 529 plan to retirement plans (such as an IRA) are not allowed.

  • You cannot change the beneficiary of a 529 account funded with custodial assets.

Can I transfer a 529 plan to another child?

With 529 plans, you can change beneficiaries without negative income tax consequences — if, say, the original beneficiary decides not to attend college or receives a scholarship and doesn't need some or all of the funds — as long as the new beneficiary is a member of the original beneficiary's family. [Qualified family includes the beneficiary's siblings (including step), parents, children, first cousins, nieces and nephews, among others.] It really is as simple as it sounds. You just change the name of the account's beneficiary to someone else in that person's family or transfer a portion of the assets to the other beneficiary's 529. This is not the case, however, for 529 plan accounts funded with custodial assets, also known as UGMA or UTMA accounts, assets — which are considered an irrevocable gift and, therefore, the beneficiary cannot be changed by the UGMA or UTMA custodian. They differ from non-UGMA/UTMA funded 529 accounts in that the funds are invested on behalf of minors who become owners of their accounts once they come of age.


If you're looking to give something to your grandchild that has everything or they may have more toys than they know what to do with and their parents say no more toys please, why not start saving for their future?


Since our first grandchild was born in 2017, we have opened 3 more plans with another one to add in September with the birth of our 5th grandchild. Don't get me wrong, I love buying the perfect "gifts" for their birthdays and holidays, but after the perfect gift fades, it's nice that they will have this nest egg for their future.


If you're curious about this plan, consult your financial advisor to see if this is right for you. This should not be considered to be financial advice. You should check with your financial advisor as to what options work best for you and your family.


xoxoxoxoxo

Gigi Susie