Next Avenue: Why grandparents should set up 529 college savings plans

by | Jul 20, 2023 | Stock Market

This article is reprinted by permission from Giving your grandchild a new toy or game or clothes is nice. But helping pay for their future college education? Now, that’s a gift your grandkid and their parent — your adult child — will never forget.

One smart way to do it: Opening and funding a 529 college savings plan. These are state-sponsored investment accounts that enable you to save money tax-free to pay for some or all of the college costs for a child, grandchild or other beneficiary. A new federal rule taking effect next year will make doing so even better.You can save a lot Helping your beneficiary foot that college bill and avoid student loans (current interest rate: roughly 5.5% to 8.0%) can be a huge money saver for them and their parents. The average annual cost of attending a private, four-year college now tops $53,000; it’s a tad over $23,000 for an in-state public institution, according to The College Board. The average federal student loan debt: $37,787. (The Supreme Court recently struck down President Joe Biden’s plan to cancel $10,000 to $20,000 in federal student loan balances for more than 40 million borrowers.) Many state-run 529 plans let you open accounts with as little as $500 or $1,000. When you fund your grandkid’s college costs with one, the money you contribute grows tax-free and can be used for any college in any state. Distributions from the plan for education expenses are tax-free, too. If your beneficiary winds up not going to college or receives a full scholarship, you can change the 529 beneficiary to another grandchild or family member. Or you can withdraw the contribution amounts from your grandparent-owned 529 tax-free and penalty-free (you will owe taxes and a 10% …

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