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Edward
L. Patzer, a financial consultant for over 25
years, leads THE PATZER GROUP at AG Edwards,
a division of Wachovia Securities, LLC. Formerly
the South Bend Branch manager, Ed in 2003, organized
his group of four professionals to help clients
preserve and build wealth while managing tax
exposure and estate planning. Ed, his wife Patty
and family are residents of Edwardsburg.
View
other articles by this Author.
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As
you may already know, by investing in a 529 college savings
plan, you can give your grandchildren the opportunity to benefit
from a college education while taking advantage of potential
tax and estate planning savings. This is because you can make
this investment federal-tax-free and you can also contribute
up to $60,000 per beneficiary without triggering gift tax consequences.
In
2009, you can continue to benefit from these perks, but you
can also take advantage of some enhancements made relative
to the 529 plan. In September 2007, President Bush signed
into law The College Cost Reduction and Access Act of 2007,
which will not only cut loan rates and forgive debt for some
graduates; it also changes some of the federal financial aid
rules with regard to the 529 plan.
Currently,
529 accounts that are held by dependent students, grandparents
or other third parties are not taken into account in the federal
financial aid calculation. However, beginning on July 1, 2009,
529 accounts held in the name of the dependent student will
be counted as a parental asset in the federal aid formula
and therefore will be assessed at a rate of 5.64 percent.
This change makes grandparent- or other third-party-owned
529 plans even more attractive from a financial aid perspective.
Your grandchildren could benefit from a large gift in which
you maximized the contribution limits, and at the same time
it will not reduce the amount of federal aid awarded to them.
Back
to the Basics: Remember, although 529 plan contributions are
immediately excluded from your taxable estate, you maintain
ownership and control of the account. As the account owner,
you - not the beneficiary - approve all investments and withdrawals
and you also have the freedom to change your beneficiary to
a relative of the original beneficiary without taxes or penalty.
Additionally, you name a successor owner on the account so
that control passes at your death to that successor owner
who would then have the same control over the assets that
you had.
If
you haven't begun contributing to a 529 plan for your grandchildren,
but would like to take advantage of the new benefit, it is
important to note that many 529 plans require an initial investment
of as little as $250. And, after that you can generally make
additional contributions of as little as $25 or $50 at a time.
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Once
you begin setting money aside for your grandchild's education
in a 529 plan, you can leave the investment decisions to the
experienced professionals that manage the plan you choose. Depending
on the particulars of your plan, the investment options may
include individual mutual funds, age-based portfolios with asset
allocations that change over time, or set portfolios in which
the investments stay the same for the duration of your holdings.
An investment in a 529 plan will fluctuate such that an investor's
shares when redeemed may be worth more or less than the original
amount, and there is no guarantee that an account will grow
enough to cover higher education expenses. Consequently, you
should consider a 529 plan's investment objectives, risks, charges
and expenses carefully before investing. The plan's official
statement, which contains this and other important information,
should be read carefully before investing.
With
rising college costs, your grandchildren could greatly benefit
from money set aside for them in a 529 plan, especially in the
wake of this new provision that won't hinder their ability to
access federal financial aid. Talk with your financial professional
today to see about setting up one of these valuable savings
plans.
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