Since the laws have changed to allow a grandparent to fund a 529 plan for education expenses without it negatively impacting the student’s ability to qualify for federal financial aid, many grandparents are seriously considering this gifting option. Many still wonder about the flexibility of the plan and what it can actually be used to buy.
The main benefit of the 529 plan is that interest can grow on the original amount invested tax-free as long as the beneficiary uses the funds for “qualified education expenses”. Many grandparents worry about what types of expenses are included and what happens if the grandchild chooses another path other than college. Let’s take a look at what qualified education expenses entail.
Tuition
Obviously, the funds can be used to cover the cost of college tuition. This includes community colleges and vocational schools. You can also withdraw up to $10,000 per year to pay towards tuition at K-12 schools.
Room and Board
The funds from the 529 plan can also be used to pay for the student’s on-campus residence hall fees and school meal plan. If the student chooses to live off-campus, you can still apply money from the 529 plan towards that rental fee, but the amount is capped by the amount it would cost to live on-campus. The same goes for meals, but the student must keep receipts to prove that all 529 withdrawals were appropriately used.
Computer
The 529 plan can also purchase a computer or laptop for the student to use as well as any education-related software or subscriptions.
Books and Supplies
College fees that are required to attend that school may be qualified education expenses and paid out of the 529 plan. These may include:
Textbooks/Learning Materials – Students can spend up to $1200 per semester.
Lab Fees – Some courses, such as chemistry, require a fee to use the student labs.
Tech Fees – May include the use of computer labs or Wifi.
Athletic Fees – Any costs associated with being involved in college athletics.
Transportation Fees – Paying for the campus bus or shuttle.
Health – Paying for appointments at campus health clinics.
529 Plans are also flexible in that the amounts can be transferred between beneficiaries as needed. If one grandchild attends a community college and another an Ivy League school, the funds can appropriated as needed. Grandparents can also reclaim the funds for themselves if unused or they need the money back but there will be penalties and tax consequences.
For more information on the gifting strategy of using 529 plans to transfer wealth to other generations, contact the experienced estate planning attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
