Grandparents’ 529 plan questions answered

Family

Whether they call you Gramma and Grampa, Nana and Pop-pop, or Grandmother and Grandfather, your grandchildren know they can count on you for all the love, fun (and extra cookies) they can handle.

What they – and you – may not know is how grandparents can help with college savings through an Edvest 529 plan. Read on to see the answers to some of the most frequently asked questions grandparents have about saving for college with Edvest.

 

My grandchild already has an Edvest account. Should I open another?

You certainly may. As an account owner, you would be in control of the funds, and would decide how they are invested. Or, you may contribute to an existing account and may still be eligible for state tax benefits. It’s all up to you.

Who controls the Edvest account and funds?

If you are the account holder, you control the funds. The Edvest 529 College Savings Plan offers 22 investment options to choose from, so you can select the plan that best matches your investment style and timeframe.

Are there any benefits to me as a grandparent?

Yes! First, any account earnings have the opportunity to grow free from federal and Wisconsin income taxes. Withdrawals used for qualified higher education expenses are also free from Wisconsin and federal taxes.

If you are a Wisconsin taxpayer, your Edvest contributions may reduce your state taxable income up to $3,100 per beneficiary for 2015. If you exceed the maximum contribution allowed for the tax year, the amount may be carried over into subsequent years.

Finally, your Edvest contributions may reduce the taxable value of your estate. For example, contributions to the account, together with all other gifts from the account owner (you) to your beneficiary (your grandchild), may qualify for an annual federal gift tax exclusion of $14,000 per donor per beneficiary ($28,000 if married and filing jointly).

What if my grandchild decides not to go to college or technical college?

If your grandchild doesn’t attend college, you may name another eligible family member as the beneficiary for the account. However, since there is no time limit on using the funds, your grandchild may use them when he or she is ready for higher education and professional training.

If the funds are withdrawn and are not used to pay for qualified higher education expenses (or if an ineligible family member is named as the beneficiary), they will be subject to the 10% federal tax on the account’s earnings, as well as regular federal and state taxes. If you find yourself in this situation, please consult your tax advisor as well as the Edvest Disclosure Booklet for further details.

Will having an Edvest account affect my grandchild’s eligibility for financial aid?

While the assets are in a grandparent-owned 529 account, the assets do not count as the grandchild’s income or assets for needs-based financial aid purposes. (Parent and student incomes and assets are considered in the calculations.) Once the assets are withdrawn from the account for college costs, 50% of the amount is counted on the student’s FAFSA (free application for federal student aid) form. The U.S. Department of Education has announced changes to the FAFSA for the academic year 2017-18 that push the impact of a grandparent gift out two years.

During the transition period until the changes go into effect, you could consider alternative strategies:

  • Wait until your grandchild is in the final years of college to withdraw assets from your grandparent-owned 529 account – after all FAFSA applications are submitted. Asset and income calculations for FAFSA are based on the previous year’s information.
  • Transfer ownership of the account to your grandchild’s parent when the child is in college. The FAFSA calculation will consider approximately 5.64% of the parent’s assets as available to use to pay for college.

Remember that the treatment of investments in a 529 college savings plan varies from school to school, so it is important that you and your grandchild understand the policies in place at a particular institution.

If you have more questions about saving for your grandchild’s higher education expenses through Edvest, please visit Edvest.com  or call us at 1-888-338-3789 (M-F, 7 am – 7pm CT).

Consider the investment objectives, risks, charges and expenses before investing in the Edvest College Savings Plan. Please visit Edvest.com for a Plan Disclosure Booklet with this and more information. Read it carefully. Investments in the Plan are neither insured nor guaranteed and there is a risk of investment loss. TIAA-CREF Tuition Financing, Plan Manager.

Before investing in a 529 plan, consider whether the state where your Beneficiary resides has a 529 plan that offers favorable state tax benefits that are available if you invest in that state’s 529 plan. Non-qualified withdrawals may be subject to federal and state taxes and the additional 10% federal tax.

The tax information contained herein is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties. Taxpayers should seek advice from an independent tax advisor based on their own particular circumstances. The Edvest College Savings Plan is administered by the state of Wisconsin.