Should I Make The Maximum Allowable Contribution To My Child’s or Grandchild’s 529 Plan?
Our FAQ series offers insights into questions and concerns that we often hear in our discussions with clients. In this edition, Charles Scarallo covers educational planning for your children and grandchildren. Ask your GMAG team.
Together, we always find an answer.
Contributing the full amount to a 529 plan is tantamount to putting all your eggs in one basket. Generally, as far as education savings go, we would suggest a more varied approach. There are simply too many unknowns when it comes to predicting what a child’s goals will be. What scholarships will they receive? Will they even choose to attend college at all?
There is also a degree of uncertainty about how much higher education will actually cost by the time a child or grandchild reaches college age. We make projections based on the rate of inflation of college costs over the past 20 years, but tuition fees are subject to drastic change, of course. For these reasons, a hybrid approach to saving for a child’s education may be the best approach. This often combines a 529 plan’s beneficial tax advantages with other assets that can be used to pay for education. We work closely with clients to advise on the appropriate structure for a living, breathing plan that we monitor to take stock of how the projected price of education might have shifted, how much money has already been saved, and how those figures square with where the child is. We do all this so we can identify any changes or shifts that should be considered for you to reach your goals.
There are features and restrictions with 529s that we can discuss. For instance, balances can be transferred to other children or grandchildren without incurring a penalty if you end up with leftover funds in a 529 plan after the child has completed their education. However, if you take money out of the 529 plan and do not use it for education, you will have to pay taxes at a 10% penalty.
With tuition fees reaching all-time highs, it is always helpful to start thinking about saving for education early, and our team is here to guide you along the way.
GMAG does not provide any express or implied guarantees that the information contained herein is accurate or complete. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information contained herein, by GMAG, its members, partners or employees, and no liability is accepted by such persons for the accuracy or completeness of any such information.
GM Advisory Group does not provide tax, legal, or accounting advice. This material is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting professionals before establishing any plan or engaging in any transaction.