News Reader.info

1. 529 PLAN FOR EDUCATIONAL EXPENSES Your first thought is to start, or add to, a 529 education savings plan for college. Great. In 2020, the average annual cost of tuition, fees, and

room and board for a four-year, in-state public college was almost $22,000 — and it was $50,000 for a four-year private college. Plan withdrawals can be used for these qualified expenses.

For tax purposes, your contributions will be considered gifts. You can give up to $75,000 ($150,000 per couple) in a single year to lower your taxable estate, provided you treat it as if you

made it in equal amounts over a five-year period (IRS Form 709). “Or you and your spouse could give $15,000 per year, per child, if you prefer,” Lineberger says. That is, $15,000 from you

and $15,000 from your spouse. If you have three grandchildren, that’s a total of $90,000 without gift-tax consequences. Also, under the SECURE Act, in effect since January of 2020, your

grandchild, the beneficiary, can use these funds to pay for qualified expenses related to apprenticeships, and up to $10,000 over his or her lifetime to repay student loans. This money can

also be used to cover qualified education expenses for elementary and high school students — up to $10,000 per beneficiary per year. All of this is tax-free. What about student financial

aid? Because 529 funds are considered parental assets, they will have a minimal effect on the family’s expected family contribution (EFC) and the student’s financial need. These plans have

several advantages over a Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA) account or a Coverdell educations savings account (ESA). For the details, consult

your financial planner or tax adviser. 2. SERIES I SAVINGS BOND Have you thought of a savings bond? John Scherer, a CFP at Trinity Financial Planning in Middleton, Wisconsin, suggests

purchasing a Series I savings bond directly from TreasuryDirect.gov. “This is a safe investment that’s backed by the U.S. government, with a guaranteed rate and an inflation component. If

used for college, the gains can be tax-free.” Interest rates on these bonds change on May 1 and November 1, based on the bond’s fixed rate (0 percent) and inflation. Currently, these bonds

earn an annualized rate of 7.12 percent. 3. CUSTODIAL ROTH IRA You could encourage good money habits by opening a custodial or guardian Roth IRA for your minor grandkids, as they begin to

earn their own money, says Rose Swanger, a CFP at Advise Finance in Knoxville, Tennessee. Realistically, they’ll probably want to enjoy the funds they’ve earned from babysitting, mowing the

lawn or a summer job, she says. In that case, you could make matching contributions for the first few years to show how money grows when invested, and then let them start contributing.

“Hopefully, they will become more motivated once they see the results.” At most financial institutions, there is no contribution minimum for a Roth, and the maximum contribution for kids is

$6,000 in 2021. You control the assets and make all investment decisions until the child is 18, when he or she assumes control. As adults, they can make withdrawals without penalties for

house down payments, unreimbursed medical expenses or qualified educational expenses. Like you, they’ll be able to make tax-free withdrawals after age 59 1/2.