College Fund 529 Plan

Are you the Ant or the Grasshopper?

Geordie M. Hrdlicka and Ali Nasser

Do you remember the fable? The ant toils in summer saving food while the grasshopper plays. When winter rolls in, the ant rejoices while the grasshopper remorses. When funding a College Fund 529 Plan for your child (or grandchild), you can choose your style without the grasshopper’s eventual woes.

The 529 plan (creatively named for its numeral in the Internal Revenue Code) offers a unique blend of income, estate and gift tax benefits.

Typically, you can give $13,000 per year per child with no tax consequence. Generally, you must part with control of the gift for the IRS to consider it a true transfer removing that money from your estate. Someone may make these types of transfers to reduce the size of their estate or to decrease the impact of an eventual estate tax at death. Others make these gifts just because they like you.

Though you contribute after-tax dollars, once inside the 529, earnings on the investment grow income tax deferred and exit income tax-free if used for higher education costs. Even better, the gift is considered out of your estate (a genuine concern if your estate is large enough to be taxed). There’s more! You can save monthly or annually up to $13,000 per year per child or, make a one-time 5 year gift of $65,000. Add a spouse’s contribution and it doubles to a $130,000 contribution in one year. The investments can then be managed conservatively or aggressively based on your risk preference.

What if your darling turns into a demon senior year? Or, let’s think positive, receives a full ride. Though these contributions qualify as completed gifts removed from your estate, the IRS allows you to own and control the asset for your lifetime. You can change the beneficiary or withdraw the money. You’re in charge. Of course, the IRS defines who qualifies as an acceptable beneficiary and there are penalties and tax on profits associated with unqualified withdrawals (waived if there’s a scholarship involved). There is no free lunch, but with the 529, you can choose your style of savings with great tax benefits and control no matter which way you lean – the ant or the grasshopper.

The 529 plan is just one of many education funding techniques. It is important to consult the expertise of a wealth advisor to thoroughly understand all aspects before embarking and to ensure the strategy fits your overall financial plan.

Prior to investing, you should consult a financial advisor and read all available information. The examples given are hypothetical, for illustrative purposes only. The product features mentioned must be sold by prospectus and carry investment risk. Investment advisory services offered through Verde Wealth Group, LLC, a state registered investment advisor. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC. 130 Springside Drive, Suite 300, Akron, Ohio 44333–2431. 1–800-765‑5201. Verde Wealth Group, LLC is a separate entity from ValMark Securities, Inc. © 2016 Verde Wealth Group, LLC. All rights reserved. This article was initially published June 2012. Figures contained herein may change over time. Visit for the most current tax information. Any tax information contained herein is of a general nature and is not intended for public circulation. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein.

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