October 2020 - K.T. Williams Law

Did you know that a 529 savings plan is a tax-advantaged investment vehicle designed to encourage saving for the future higher education expenses of a designated beneficiary? There are generally two broad categories of 529 plans: college savings plans and prepaid tuition plans.

Nearly every state has at least one 529 plan available, but you can invest in a 529 plan in almost any state. Be sure to research the options available to find the best fit for you. A 529 plan operates much like a Roth IRA. The contributions are after-tax, and it grows tax-free. Distributions for qualified expenses are not taxed. Qualified expenses include tuition, as well as books, room and board, and even computers. It can be spent on K-12 tuition, graduate or professional school, or even continuing education. Additionally, over 30 states offer full or partial tax deductions on state income tax for 529 plan contributions.

There are no annual contribution limits, and the lifetime contribution limits, which vary by plan, range from $235,000 to $520,000. There are no age or time limits, so they can continue to grow indefinitely, and they can be transferred to another qualifying family member easily. The owner, who contributes the money, maintains control of the account, rather than the beneficiary, so you can make sure that it is used for its intended purpose.

The value of the 529 plan can impact the student’s financial aid. This impacts both the federal aid, as well as, financial aid from universities and colleges directly. Another potential drawback is the 10% withdrawal penalty for non-qualified distributions. This penalty can be waived under certain circumstances, including:

A beneficiary dies or becomes disabled
A beneficiary receives a tax-free scholarship
A beneficiary receives educational assistance through a qualifying employer program
A beneficiary attends a U.S. Military Academy
The qualified education expenses were used to generate the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Tax Credit (LLTC)

These distributions are also taxable as income, both federally and sometimes at the state level as well.

To learn more about 529 savings plans and the potential benefits they can bring to your estate plan, please use our office as a resource. We are here to provide you with the answers you need and help you throughout the estate planning process. Contact us today to set up an appointment.

Have you heard that Estate Planning Awareness Week is recognized in October? Estate planning can be an essential part of your financial health no matter your age or how much money you have. Estate planning can be critical for anyone who wants to help ensure their wishes are respected in the event of temporary incapacitation or upon their death. That should apply to everyone, especially during the Covid-19 pandemic. Knowing the uncertainty of what tomorrow might bring, having an estate plan in place provides some security, and regularly updating what you have put in place can help ensure that security will continue.

Depending on your age, marital and parental status, and what kind of assets you have, estate planning can be simple or a bit more complex. For most people, having a written will, choosing a power of attorney and health care surrogate, and designating specific beneficiaries for bank and retirement accounts will go a long way to protecting the future they want for themselves and their loved ones.

Writing a will is often the first step. You can decide to whom you would like to leave any prized possessions, how to divide your eventual estate, and whether you want to set up any kind of trust that would allow your spouse or partner to live comfortably while preserving assets for children and grandchildren down the road. It can be equally important to designate specific account beneficiaries for bank and retirement accounts, and make sure the beneficiary you have chosen falls in line with your will.

A power of attorney can allow someone else to make financial or legal decisions on your behalf. If durable, this power will survive, even in the event you become incapacitated. A healthcare surrogate will allow someone else to make medical decisions on your behalf should you become incapacitated. You can choose a trusted loved one to fill both roles or choose two different people who may be better suited to one or the other. The important part is that, by planning ahead now, you get to make your own choices.

It can also be important to check in regularly with your estate plan and to make any changes that may be necessary due to life events, changes in law, or under other circumstances. In addition, regularly updating your account beneficiaries ensures they stay in line with what you have in your will and broader estate plan.

This Estate Planning Awareness Week, let us all take the time to learn more about the importance of estate planning and the steps we need to take in order to establish a strong estate plan. In times of great uncertainty, an estate plan can bring much needed peace. For more information, please reach out to our office and schedule a time to meet.

What is a 529 Savings Plan?

Estate Planning Awareness Week Takes on More Significance than Ever During COVID-19

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