Tax Tip #169
College Savings Plan
Have lots of money with kids/grandkids under 18??? Contribute to a college savings plan also known as a 529 plan. 529 is the Internal Revenue Code Section. Up to $85,000 in contributions can be sheltered from gift tax per beneficiary in 2023 & $170K if your spouse agrees. This would be treated as gifting $17K (or $34K) to that beneficiary in 2023 and in each of the next four years (2024-2027). An informational only gift tax return would need to be filed.
Parents/Grandparents that pay tuition directly to a school doesn’t count against the 17K gift tax exclusion.
Some positives: some states provide a tax deduction for the contribution made to the 529 plan, even NJ (see Tax Tip #48) & tax free growth assuming that funds are used for education.
Some negatives: the value of the 529 account can have a negative impact when completing the FAFSA application for federal student aid although the impact is minimal & some fees charged by the state plan are high.
Starting next year, distributions from grandparent owned 529 plans will no longer need to be reported for FAFSA.
