Now There’s Even More To Love About 529 College Savings Plans

Saving for your grandchildren’s education has several tax benefits

Private College 529 Plan

(Paid Content)

Published May 01, 2024

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It’s a staggering statistic. The average cost of tuition and fees at a private university was $42,162 for the 2023-2024 school year¹. Add up the numbers long term, and your grandchildren could be looking at a bill of almost $170,000 (or more) for a four-year degree. That’s a lot of lemonade stands and mowed lawns!

If you’re able to help with your grandchildren’s college education, a 529 plan is a smart way to go. These plans let you contribute up to a specific amount tax-free into an account on behalf of a designated beneficiary. The earlier you start the account, the more it has time to grow.

There are two types of 529 plans: savings and prepaid. With a 529 savings plan, your contributions are held in a state-sponsored investment account to grow over time. A prepaid 529 plan lets you pay for tuition at the current rate, with the presumption that costs will continue to rise. Both types of 529 plans offer tax-free growth and tax-free withdrawals when used for qualified expenses. And, new this year, grandparent-owned 529 plans won’t count against students on the Free Application for Federal Student Aid (or FAFSA^®).

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Let’s break down the main advantages of these popular college savings plans.

The Gift That Keeps Giving

Because of generous gift tax allowances, 529 plans are an ideal tool for estate planning. The IRS looks at 529 contributions as completed gifts, meaning you’re allowed to give up to a certain amount without having to pay federal tax on it. In 2024, the amount is $18,000 per beneficiary, or twice as much for married couples. Should you go over this amount, the extra can be counted towards your lifetime gift limit ($13.6 million this year), so the donation will still likely be tax-free.

The Perks of Prepaid Plans

Prepaid 529 plans offer unique benefits. With prepaid plans, you can hedge against tuition inflation by locking in current tuition rates, even if your grandchild is years away from college. While there are a handful of state prepaid plans out there, mostly for in-state schools, Private College 529 Plan works with nearly 300 private colleges and universities across the U.S.

With Private College 529 Plan, if you contribute $40,000, and College A costs $40,000 that same year, you're buying a full year of tuition there no matter how much prices go up. Because tuition rates vary, your contribution purchases a different percentage of tuition at each college in the plan. The colleges agree to honor the prepaid tuition for up to 30 years.

See the buying power of prepaid tuition with Private College 529 Plan.

Be Super Smart

Superfunding sounds like a character in an action movie, but it’s another way to safeguard your finances. Instead of donating $18,000 a year, the special superfunding IRS rule lets people donate up to five times the annual gift amount into a 529 all at once. That’s up to $90,000 per beneficiary in 2024, or $180,000 for married couples filing jointly.

Because the funds are considered to be divvied up over five years (representing the maximum gift amount per year), you don’t have to pay taxes on them. So, in one fell swoop, a large part of your estate can be safely stashed away and grow for years to come.

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Penalty-Free

This last benefit is good news for both your children and grandchildren. In the past, all distributions from 529 plans had to be reported on the Free Application for Federal Student Aid (FAFSA). The distributions were counted towards untaxed student income and could potentially hurt your grandchild’s chances for financial aid to help pay for college. However, recent updates now allow nonparent-owned 529 plans to be excluded from the FAFSA.

All 529 plans do still need to be counted by the College Scholarship Service Profile (CSS Profile), another financial aid form commonly used by private colleges and universities.

Helping your grandchildren save for college is a generous gesture. It’s also a savvy financial move. With Private College 529 Plan, you’re protecting yourself, your family, and your finances against inevitable rising costs. There’s little-to-no investment risk. And when your grandchild graduates high school someday, they’ll have the resources they need to move on to college.

Click here to learn more about Private College 529 Plan.

^{Source:

1 https://www.usnews.com/education/best-colleges/paying-for-college/articles/paying-for-college-infographic}

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