With a new school year around the corner, it might be time for a crash course in the basics of education savings plans for our future leaders. This planning can start when they are newborns, toddlers, or teenagers and applies to parents and grandparents alike.
You have probably heard about the advantages of setting up a 529 education savings plan to pay college expenses for your children or grandchildren. But did you know these accounts can also be an important tool in estate planning? They are simpler and more flexible than traditional trust accounts and can help you preserve your legacy for generations to come. Be sure to consult an expert for the details that affect your situation, but here’s where to start:
Why You Need a Plan
Cynics will say college is so expensive, the best time to start saving for your child’s education is right after you pick up your own diploma, even if you don’t actually have any children yet. The situation may not be that dire, but it can still give the average family reason to have a strategy. The average cost of college at a public school is almost $10,000 a year for state residents and $21,000 for out-of-state students. Private institutions charge about $35,000. And that is just this year; what will you pay when your kindergartner is ready for Harvard? (Because, of course, your child is going to Harvard.)
It is almost never too late to put together an education savings plan, but the smartest time is soon after the child is born, or at least when they start elementary school. Some savings plans can be used for K-12 expenses, so if your child attends an expensive private school, you could see some benefits right away.
How Education Plans Help Your Estate
There are many ways to set aside money for education. You can create an irrevocable trust and stipulate that it may be used only for education expenses. You can open a custodial account and transfer stocks, cash, and other property into it. However, the 529 account’s simplicity has made it one of the most popular strategies for building up a college fund.
A 529 account can be opened in your name, with your child or grandchild as the beneficiary. Or you can just make contributions to someone else’s account. In either case, the contributions to the account are usually exempt from gift taxes. Bear in mind that when you contribute to an account controlled by someone else, you have no control over how the money is spent – including whether the child even spends the college fund for college. On the other hand, you also have no worries about the tax penalties they could incur from spending the money on a non-education purpose. The beneficiary you name on the account can be changed relatively easily, so when one child graduates you can name their next sibling as the beneficiary – and let the savings continue!
The cost of education is growing every year. Although it is human nature to put off major projects while you have small children, that may lead to bigger problems down the line. It is always a good idea to meet with a Financial Planner, so you know your options regarding college savings plans, UTMA accounts, and IRA accounts. There are such a variety of options out there, that almost any budget can allow for some long-term investment strategies to benefit the little ones in your family and their educational goals.
Education savings plans may sound simple, but this is no time for home schooling. Consult an expert for the best way to include college savings in your estate plan. Contact OC Estate & Elder Law at (954)251-0332 or info@ocestatelawyers.com tto get started with a free phone consultation. Our attorneys are fluent in English, Spanish, and Russian.
