IN Bethel Park Summer 2018 | Page 17

INDUSTRY INSIGHT YOUR FINANCES SPONSORED CONTENT Helping Grandkids Save for College W ith education costs continuing to soar, many grandparents may be wondering what they can do to help their grandchildren financially in the pursuit of a college degree. If you are a grandparent who has the means to lend support, there are a variety of ways you can do so. The best solution for you will depend in part on the timing of when your grandchildren will need the money. SAVING IN ADVANCE If your grandchildren are years away from needing tuition funds, you can set money aside in a variety of vehicles. One attractive option may be a 529 College Savings Plan, which allows you to deposit up to $75,000 ($150,000 for a couple)1 in 2018 into the plan for each grandchild without incurring gift taxes. That money can be deposited in one lump sum or over a period of time.2 Earnings can grow on a tax-deferred basis and be withdrawn tax-free to meet qualified education costs for each grandchild. Opening an account in your name allows you to retain control over the assets, using them for your grandchildren’s qualified education expenses as you see fit. Keep in mind that funds withdrawn from a grandparent-owned account for a grandchild will be counted as student income on the FAFSA, which is used to determine eligibility for financial aid. It’s worth noting that the recent tax reform legislation expands the tax advantages of 529 plans to expenses for tuition at an elementary or secondary public, private or religious school. Starting in 2018, you may withdraw up to $10,000 annually, federal income tax-free, for elementary or secondary school tuition incurred by your grandchildren during the tax year. Other college savings options include: • Custodial accounts. Placing cash or other types of assets into a Uniform Gift to Minors Act or Uniform Transfer to Minors Act account will, at a specified age, give the grandchild full rights to the money. That means there is no guarantee the money will be used to pay for education needs. • Education trust. Putting money in a trust that specifies it must be used for education purposes is another option. This approach can come with high legal and administrative costs, but ensures that the money would be spent according to your wish es. • Coverdell Education Savings Account. These accounts provide a way to grow savings on a potentially tax-free basis, but annual contributions are limited to $2,000 per year per grandchild and are subject to income limits. PAYING AS THEY GO If a grandchild is ready to begin college, you can provide help today in several different ways: • Gift funds to the grandchild. Annual gifts of up to $15,000 for an individual or $30,000 for a couple can be made to the grandchild without incurring gift taxes. A monetary gift will give the grandchild control over the money, which means he or she could put it to use for something besides education. • Tuition payments directly to an institution. Any amount of tuition you pay directly to a school for the benefit of a grandchild is not subject to gift tax. This does not apply to room and board or books and supplies. • Lending money. You can provide an interest-free loan to a grandchild of up to $10,000, and lend any amount over that if you apply an interest rate set by the IRS. PAYING AFTER THEY FINISH SCHOOL If a grandchild has finished college but is carrying debt from student loans, you can offer to help repay them. Any amount paid in a given year is subject to the annual gift tax exclusion limitation of $15,000 per person per year. HAVE A FAMILY CONVERSATION Before any decisions are made on the best ways to provide financial assistance for higher education needs, discuss your wishes with your children and grandchildren, as appropriate. Talk about your desire to see the grandchildren obtain a good education to help them succeed in life, and be specific about your expectations if you provide support. Then talk to your financial and tax advisor to determine the best course of action given your circumstances and goals. 1 Five times the annual gift tax exclusion. 2 Maximum accelerated gifting uses the donor’s annual gift tax exclusion for gifts to the beneficiary for the current year and next four years. Any further gifts from the donor to the beneficiary during the five-year period will generally reduce the donor’s unified credit (lifetime exclusion amount), unless the annual exclusion amount increases. This Industry Insight was written by Jonathan D. Martin. Jonathan D. Martin is a Financial Advisor with Ameriprise Financial Services, Inc. in Bethel Park. He specializes in financial planning and asset management strategies. Contact Jonathan’s office at 412.831.6240, extension 202, located at 88 Fort Couch Road, Suite 210, Pittsburgh, PA 15241, or on his website at www.ameripriseadvisors.com/jonathan.d.martin. Jonathan is licensed/registered to do business with U.S. residents only in the states of PA, OH, WV, AZ, CA, FL, IL, IN, NC, NJ, OR, SC and VA. Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser. Ameriprise Financial Services, Inc. Member FINRA and SIPC. © 2018 Ameriprise Financial, Inc. All rights reserved. Jonathan D. Martin Financial Advisor Your Photo Here 88 Fort Couch Road, Suite 210 Pittsburgh, PA 15241 412.831.6240 ext. 202 [email protected] ameripriseadvisors.com/ jonathan.d.martin Your personal financial goals deserve a personal approach. Ameriprise Financial Services, Inc. Member FINRA and SIPC. © 2018 Ameriprise Financial, Inc. BETHEL PARK ❘ SUMMER 2018 15