Section 529 College Savings Plans:
Tax-Free Growth with Parental Control
— Mary Anne Vance, Attorney at Law
The Parents
A major focus of Jon and Marsha's life is financing their children's college education. Because Tracy is 5 years old and Matt is 8, they have 10 years before writing that first tuition check, but with the costs of private school approaching $60,000 a year, the task is daunting. Though saving for college is a priority, they know they also need to set aside funds for their own retirement. Jon and Marsha are pleased to learn that, like retirement savings, college savings can also grow tax-free.
The Grandparent
Marsha's mom also wants to help pay for Tracy and Matt's college expenses. She is timid about putting money into a custodial bank account under the Uniform Transfers to Minors Act knowing the children would gain complete control over the money at the young age of 21. She wants assurance that the parents will have complete control over the spending of the money for education. Grandma considered creating a trust for the children's benefit, but she does not want to spend money on the attorney fees.
The Solution
The IRS has created a college savings plan that allows parents and grandparents to contribute to a child's college fund. Invest in a Section 529 College Savings Plan and you will not pay federal income tax on its growth. Special features are:
- The owner (parent) of the Plan maintains control of the asset even after the beneficiary turns 21 years old.
- The owner (parent) can change the beneficiary any time.
- Gifts to the Plan constitute a completed gift for federal gift and estate tax purposes. Grandma can reduce the size of her taxable estate by contributing.
- Gifts up to $70,000 per single donor in one taxable year are excludable from the donor's estate if the donor lives five years past the date of the gift.
- $100,000 to $250,000 is generally the maximum that can be invested in a Plan, depending on the State.
- Washington State does not sponsor a 529 Plan, but has an alternative plan called the Guaranteed Education Tuition Plan "GET." By purchasing a "unit," the unit's value will increase at the same rate as the increase in Washington State college tuition.
- You can buy into another State's 529 Plan and your children are not required to attend that State's schools with the money.
Contact me if you have specific questions or would like to schedule an appointment.
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Seattle, WA Estate & Trust Lawyers
Mary Anne Vance
Reed Longyear Malnati Corwin & Burnett
801 2nd Avenue, Suite 1415
Seattle, WA 98104
(206) 624-6271
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