People who are interested in providing educational opportunities to their loved ones may want to consider contributing into a 529 plan. These plans are named after the section of the IRS code that defines them, and they provide you with a tax efficient vehicle within which you can contribute resources earmarked for educational expenses that your beneficiary will incur in the future.
The way that it works is that you make contributions incrementally and they are invested so that your 529 account appreciates over the years. When it comes time for the beneficiary to enter college the resources in the account can be utilized, and these distributions are not considered to be taxable income. This is one of the advantages from a tax perspective.
In addition, the appreciation itself is not taxed as long as the beneficiary does indeed wind up utilizing the resources for his or her education. We include the caveat “as long as” because you as the grantor may reclaim the assets placed in the account if you want to (though there is a 10% penalty along with income tax responsibility) and this is another one of the appeals.
From an estate planning perspective the 529 account would not be considered to be part of your estate. This may provide you with estate tax efficiency if your resources exceed the exclusion amount.
If you would like to find out more about 529 plans and other possibilities, simply take a moment to arrange for a consultation with a licensed and experienced Oklahoma City financial planning attorney.
Author, President and Founding Attorney
Parman & Easterday