By Here’s what you need to know about how you can benefit from these updates.
Now that we’ve all survived prom season and all the hoopla that comes with that, soon enough we’ll be in the midst of graduation season, with caps and gowns and parties and first jobs. While the kids are happy to be graduating, all you parents out there will be thinking about the next tuition bill coming due as another kiddo heads off to college.
Something you may not realize after your quick review of the Tax Cuts and Jobs Act, is that included in that act are changes to the 529 savings plans. You are now able to save for K-12 private and religious school tuition expenses in your 529, tax-free, whereas before, those funds were restricted to college and higher education.
For many families, this meant they were unable to save tax-free for private elementary or high schools. This is a big change for parents and grandparents who want to send their children and grandchildren to Catholic school, for example, as you’re now able to fund that account tax-free going forward. This not only saves the giftor on taxes on any gains in the account, but also allows the recipient to use those funds for all qualified pre-college expenses. Check out this video for more information about how and where you can spend 529 funds.
Previous K-12 savings plans only allowed up to $2,000 per child, so it really wasn’t worth it, with private schools costing $12,000-$18,000 a year. Now, saving for those expenses becomes much more doable, and you could realize significant tax-free capital gains over time. Suddenly, it’s definitely worth it.
Okay, enough about tax laws, and what might have felt like a guilt-trip about reminding you to plan for college costs. At my house, by the end of this month, I’ll have a 13-year-old who’ll be going to college in five years, a 10-year-old who’ll be going to college in eight years, and a 5-year-old who’ll be going to college in 13 – no, scratch that – 14 years, as we’ve decided to hold him back. His teachers recommended another year for Michael to adapt to being in a classroom and acting like a civilized human being. Can you imagine, a Smyth boy causing a ruckus in a classroom?!?! Anyway, this is a good reminder for me that even my own education plan for my boys needs to be reviewed and perhaps tweaked based on these new rules.
Are you a parent or grandparent who wants to set up an account for your family’s educational expenses? Please, let us know what questions you have so we can help you plan.
Article by David Smyth, CLTC, Senior Partner at Family Financial Partners — a financial services firm in Lexington, Kentucky.