As we all know, a good education is essential, yet unfortunately, these days it’s also quite expensive. One of the benefits to the new tax bill is the expansion of the expenses for which your 529 plan savings can be used. Historically, 529 plans have been only for higher education expenses such as tuition, books, room and board. Now you can use those savings for private and charter schools before college as well. While this may not expand the market of those utilizing these investment vehicles, it does incentivize savers to increase their planned savings to pay for more years of education.
Benefits of educational savings accounts
Funds set aside in these education savings plans can be invested in the market and grow tax free. Without the drag of capital gains taxes weighing down performance, your savings can really grow to serve your loved ones in the future. The potential for tax-exempt or tax-deferred gains and the need to save for ever-increasing educational expenses means that investors really need to strategically plan for the future. The sooner you save for your children and grandchildren, the more your savings have time to grow. The more you save up front, the larger the potential compounded returns.
The good news is that the IRS allows you to superfund your 529 plans to put away more as soon as possible. While the regular annual gift limits of $15,000 apply, the IRS allows you to project that out for 5 years and contribute all at once. This means you can contribute up to $75,000 per child, and that’s just per individual. Your spouse can contribute an additional $75,000. Anyone else can contribute to the 529 plan you establish for your child.
Family members can contribute into college savings
If grandparents or other family members want to pitch-in for educational expenses they can do so up to the same annual (or super-annual) limits. A great key factor is that the account remains in your control. You can change the beneficiary in the future if the planned recipient doesn’t use all the funds. You could even use the leftovers to take some classes yourself.
Give us a call to go over planning for your child or grandchild’s education and how you can grow your current assets for their future.