I am thrilled to share that my article, "A 529 College Plan for Your Grandchild: A Great Idea!", has been featured in the latest edition of the Palm Beach Daily News – Estate Planning Supplement.
In this piece, I explore the benefits of 529 college savings plans and how they can help grandparents support their grandchildren’s education while maximizing tax advantages.
Read the full article below, and to access the complete publication, visit the Palm Beach Daily News.
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As a grandparent, you want to provide your grandchild with the best opportunities in life. One way to do that is by investing in their future education, and with the recent passage of the SECURE 2.0 Act, 529 College Savings Plans have become even more attractive.
Why a 529 Plan Makes Sense for Grandparents
A 529 College Savings Plan allows you to contribute toward your grandchild’s education while enjoying several tax benefits. But there’s more—when you own the 529 plan rather than your child or grandchild, the funds don’t need to be reported on the FAFSA financial aid application. This small shift can have a big impact: your grandchild may qualify for more financial aid, reducing the financial burden on the family.
Another key benefit? You can gift up to $18,000 per year per grandchild, without triggering gift taxes. But if you’re in a position to contribute more, a special rule for 529 plans allows you to “super fund” the plan with up to $90,000 upfront ($180,000 per couple). This gives the funds more time to grow, tax-deferred, while also reducing your taxable estate—a significant consideration, especially with the estate tax threshold set to change in 2026.
SECURE 2.0 Act: Enhanced Flexibility and Options
The SECURE 2.0 Act further strengthens the 529 plan by adding flexibility. You, as the account owner, can pull back the funds if necessary or even change the beneficiary to another grandchild if the original one doesn’t need the funds.
Additionally, if any funds remain unused after your grandchild’s education, new rules allow you to roll over up to $35,000 into a Roth IRA—under certain conditions. This opens up an incredible opportunity for your grandchild’s long-term financial health, potentially giving them a jump-start on retirement savings.
Starting early is key here, as the 529 account needs to be open for at least 15 years before you can roll out funds.
The Rising Cost of College and Other Uses for a 529 Plan
College tuition continues to climb, and new financial aid rules make it even harder for small business owners and families with multiple children to qualify for assistance. For example, starting in 2024, the FAFSA formula will count the value of a family’s small business when determining financial aid, and families with more than one child in college will no longer receive the previous benefit for having multiple students enrolled at the same time.
However, attending a community college for the first two years before transferring to a four-year university can drastically reduce the cost of a degree. And while many parents hope for an athletic scholarship, only 2% of college students receive full athletic scholarships, and the average scholarship is far less than most families expect.
529 plans aren’t just for traditional four-year universities anymore. You can use the funds for K-12 private school tuition (up to $10,000 per year), technical schools, special needs services, and even to repay up to $10,000 in student loans. This makes a 529 plan versatile for a variety of educational paths, ensuring that your contribution can make an impact, no matter which route your grandchild chooses.
529 vs. Other Savings Options
A common mistake families make is keeping their college savings in low-yielding accounts like checking or savings accounts. According to a recent survey, 52% of families’ college savings are held in cash, which not only generates taxable interest but also grows more slowly than other investment options.
A 529 plan, on the other hand, allows your money to grow tax-free, and withdrawals used for qualified education expenses are also tax-free. This can have a dramatic effect on the overall amount available for your grandchild’s education. For example, at a 6% tax-free annual return, a 529 plan will grow far more than a similar account taxed at a 32% marginal rate.
Important Considerations When Opening a 529 Plan
When choosing where to open your 529 plan, it’s important to be aware of potential fees. Some broker-sold plans come with up to a 5% front-end load, meaning a portion of your contributions is used to cover fees before they are invested. Always ask for fee transparency so you can understand exactly how your financial professional is compensated and ensure you are getting value for the services provided.
Conclusion
Investing in a 529 College Savings Plan for your grandchild is a powerful way to help secure their future, and with the new rules under the SECURE 2.0 Act, it’s more beneficial than ever. Not only will your contributions grow tax-free, but you’ll also have the flexibility to adapt the plan as your grandchild’s needs change.
By opening a 529 plan, you can help secure your grandchild’s educational dreams while also maximizing the tax benefits for yourself. It’s a win-win for both generations.
