Grandparent-Owned 529 Plan

Grandparents who want to contribute educational funds for their grandchildren have several options to do so. You can save good old-fashioned cash at the bank, make provisions in your estate plan with an educational trust and you can also open a 529 savings plan in your name for your grandchild. In Pennsylvania, contributions to the College Career and Savings Program Account are exempt from the state’s inheritance tax regulations. Other benefits of a grandparent owned 529 plan include:

• You may make annual contributions up to $17,000 into a 529 plan for education
• Upon initial opening the account, there are provisions for making up to five years of annual gifts at once without facing gift tax penalties
• The 529 plan is a means for growing your cash investment as an after-tax contribution
• When used specifically for education costs, the earnings and distribution of funds are tax-free
• Up to $10,000 may be spent toward elementary, middle and high school tuition investing
• For your grandchild in college or graduate school, 529 funds can be used to pay for a full range of qualified expenses such as tuition, fees, supplies and books
• When you deposit your annual gift into the 529 plan, it is no longer part of your estate; this is good news for estate tax planning

There are significant tax advantages, flexibility for the educational use of the funds and a means for you to control distribution to your grandchild. There are also some drawbacks when it comes to potential financial aid your grandchild would qualify for; limited investment options; and penalties if you withdraw the 529 funds for anything other than paying for education-related expenses.

If you have grandchildren in Pennsylvania and you want to explore which options are best for providing for your grandchildren’s current or future, we can help you set up a fund for this purpose.