529s Give The Most Boom For The College Buck
Parents can contribute to 529 college savings plans without concern that the accumulated savings will reduce their childs financial aid package, notes Bruce Harrington, vice president and director of product development for MFS Investment Management Inc., Boston.
To help boomers get the most of their college savings and financial aid plans, advisors should counsel them to open a 529 plan in a parents own name, with the child listed as beneficiary. Thats because only 5.6% of the parents assets are considered in financial aid formulas, compared to 35% of the childs assets.
If the parent already has set up a Uniform Gifts to Minors Act or Uniform Transfer to Minors Act account in a childs name, have the parent convert it and other assets held by the child to a 529 account held by the parent, Harrington urges.
The reason: assets in UGMAs are taxable, whereas those in 529s arent.
“Also, when a child turns 18 or 21, depending on the state, they can take money out of an UGMA,” explains Harrington, “even if they decide not to go to college. With a 529, parents control the funds as long as the account exists.”
Wealthy boomers who have kids about to enter college have another good reason to consider 529s: You can take a $55,000 gift tax deduction in a single year.
“The normal gift rule says you can give $11,000 per year to anyone tax-free. But with a 529, you can give 5 years all in one year,” Harrington says.