Personal Finance

Giving the Gift of an Education to the Next Generation

Who doesn’t like a gift? 
Everyone knows and loves the feeling they experience when someone gives them a gift. That experience can be further heightened when the gift comes from a parent or grandparent, regardless of the recipient’s age. On the other hand, giving a gift to someone can also be just as, if not more, rewarding than receiving.

529 Plans as Gifts 
Giving or contributing to the gift of education for a loved one, if you are so inclined, is an impactful and rewarding way to exercise the act of giving. One way to do this is through a 529 Education Savings Plan. While 529 Education Savings Plans were originally designed to facilitate saving for higher education (college) expenses, the Tax Cuts and Jobs Acts (TCJA), signed into law in December of 2017, further expanded the use of 529 Plans to allow K-12 expenses to be included under the definition of “qualified education expenses.”

There are several tax related advantages that go along with this unique “Gift of an Education” opportunity.

At the Federal tax level, all gift contributions to a 529 Plan are permitted to accumulate on a tax-deferred basis, and any earnings are tax free if the money is used to pay for the gift recipient’s (the 529 plan beneficiary) qualified education expenses. It is important to note that any earnings that are withdrawn and not used for a qualified education expense are taxed at the individual’s rate and subject to a 10% penalty. At the state tax level, some states offer tax deductions for your gift contributions to a 529 Plan; there are those states that also exempt qualified withdrawals from income tax. State-specific rules apply to the use of 529 Plans for K-12 education funding, as not every state has amended their rules to follow the federal tax treatment afforded to K-12 funding.

Connection to the Next Generation 
As your family may expand and welcome new children or grandchildren, this happy event is also a great time to consider how you may be able to help fund their education and establish a solid foundation of financial security and literacy in those younger generations of your family. When the time comes, you, with the help of your financial advisor, may consider discussing the reasons for the gift of the 529 plan with the beneficiary, and use this as a learning experience as they begin to establish their own goals and understanding of personal finances.

Contact us today to discuss your whether a 529 Plan gift may be the right fit for your overall financial plan and goals.

This does not constitute tax, legal, or accounting advice. For tax, legal, or accounting advice, please contact the appropriate professional. 

This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within.

Timothy J. Herrera, AWMA®
Vice President, Director of Mutual Funds and ETFs

Tim Herrera serves as Director of Mutual Funds & ETFs within Janney’s Wealth Management Department. He joined the Firm in October 2007 and has over 25 years of experience in the financial industry. Mr. Herrera leads strategic partner relationship efforts with Janney’s Mutual Fund, ETF, 529 Plan, and Alternative Investment product partners, and he also provides support to the growth of Janney’s fee-based/advisory platforms. 

Prior to joining Janney, Mr. Herrera served in various leadership roles with ADP, The Bank of New York and JP Morgan. A graduate of Hofstra University with a BBA in Banking and Finance, Mr. Herrera also holds the FINRA Series 7, 66 and 31 licenses and he attained the Accredited Wealth Management Advisor (AWMA®) designation through the College of Financial Planning®.

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