Collin County Living Well Magazine May/June 2016 | Page 32

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very parent and grandparent
wants the best for their children
and grandchildren. The hope
is to pass along the wisdom of
their experience, so that their
offspring avoid pitfalls and benefit from
better choices. Making good financial
choices can have particularly significant
benefits for children and grandchildren.
In our capitalist society, dollars can open
doors and provide opportunities. Saving
early in the correct savings vehicles can
allow you and your children (and their
children!) to reap the rewards of the time
value of money and compounding interest. So, the question to ask your kids is:
Would you like a dollar now, or $1 million later?

A Question
for the Ages
How Your Financial
Experiences Can Benefit Your
Children & Grandchildren
By Sue Bogoevska

Ways to Save
There are a number of savings vehicles
available, and some offer significant tax
benefits. 529 college plans, custodial accounts, and Coverdell Education Savings
Accounts are some of the most popular
options.
Gifting: Anyone can gift up to $14,000
per person per year with no gift tax. Rather than giving an outright gift, though,
consider savings vehicles that offer additional benefits.
529 college plans: instead of simply
providing a monetary gift, consider putting the money into a 529 college savings account. You can deposit up to five
years’ worth of gifting in advance, for a
total of $70,000 for 2016. 529 plans
have a number of tax benefits, including:
• State specific plans, which may offer
an income tax deduction or credit,
in addition to a variety of investment
options.
• The monies grow tax-free if they are
used for college education expenses.
• Account balance may be transferred
to an eligible family member without
taxation.
It is important to keep in mind that a 529
account is established individually for
each minor, although multiple donors
can contribute to it. Additionally, having
a 529 account may affect financial aid
eligibility for the student.
Custodial accounts: Custodial accounts can be brokerage or bank savings accounts, and, like 529s, there

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can only be one minor per account.
Custodial accounts are characterized
by the following:
• Up to age 14, dividends and capital gains are taxed at the minor’s
tax rate. Then they are taxed at the
parents’ tax rate.
• The custodian controls the account
for withdrawals & transactions.
• Once minor reaches age of majority (18 or 21), the account is owned
by the minor.
• There are no limits on contributions.
• Investment choices are whatever is
available through the firm.

COLLIN COUNTY Living Well Magazine | MAY/JUNE 2016

Coverdell Education Savings Account: These education savings accounts can be used for elementary and
secondary school, in addition to college.
• These accounts have a $2,000
annual contribution limit.
• There is an income restriction on
donors to a Coverdell Education
Savings Account (must be under
$110k modified gross adjusted income for an individual, $220k for
joint filers to be eligible)
• Contributions are only permitted
until the minor turns 18.