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Using Estate Planning to Save Significant Funds On College Tuition for Loved Ones


For many families, the rising costs of a college education can become daunting and overwhelming. However, what many do not realize is that estate planning can help to address these issues. One way of doing this is through a Section 529 Qualified Tuition Plan, which offers a number of savings and tax benefits over, for example, making a gift into a custody account or trust under the Uniform Gift to Minors Act (or, in Florida, the Uniform Transfers to Minors Act). With 529 plans, nothing is taxed until the funds are distributed, and even at that point, all distributions are tax-free as long as they qualify as higher education expenses, as we discuss below.

Choice Of Plans

There are two types of 529 plans: Prepaid and savings plans. Prepaid plans allow you to purchase credits for the future that lock in today’s tuition rates. For example, if the child is going to college in 2022, you could purchase four years’ worth of tuition credits in 2020, which could result in huge savings. Conversely, savings plans operate more like Roth or Traditional IRAs in that they are investments that allow you to cover more tuition if the investment does well (or less if it does not).

How Taxes Work Under 529 Plans

Under these plans, distributions that are used for what qualifies as higher education expenses are tax-free. This includes books, equipment, supplies, room and board, and tuition as long as the student is enrolled at least half-time. Any distributions outside of these are taxed to the beneficiary, along with a 10 percent penalty tax.

Contributions made to qualified tuition programs are treated as gifts and qualify for the annual gift tax exclusion, which typically changes with each new administration. For example, in 2019, it was $15,000 per person, or up to $150,000 per beneficiary if you and your spouse both contribute. You can also choose to spread out the contributions over five years if this is more beneficial (based on how many contributions you make in a year, the exclusion amount, gift taxes, etc.).

School Choice, Program, And Beneficiary Flexibility

These programs also provide for a certain amount of flexibility, such the ability to change the beneficiary or roll the funds over from one program to another without any tax consequences. In addition, any accredited school – including most nonprofit public and private schools – are eligible.

If You Have Any Questions About Using Estate Planning To Save For College Tuition, Contact Our Florida Estate Planning Attorneys

If you are a grandparent setting up a plan for a grandchild or in a similar circumstance, you may want to designate an alternative custodian – such as the child’s parent – to make distributions for you when establishing one of these plans. If you have any questions about these plans and/or estate planning in Florida in general, contact the Orlando estate planning lawyers at Gierach and Gierach, P.A. We have provided family-based estate planning services for our clients for decades, and we are dedicated to helping you plan for your future.





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