Bucks Writs - Summer 2018 - 23

Let's say you maxed out with your
pre-tax retirement plan contributions
and would like to save more for your
retirement. Your income doesn't
allow you to make a deductible IRA
contribution or a contribution to a
Roth. What else can you do? Open up a
529 plan with you listed as the owner
and beneficiary.
Retirement Planning

Education Legacy Planning

Let's say you maxed out with your pre-tax retirement
plan contributions and would like to save more for your
retirement. Your income doesn't allow you to make a
deductible IRA contribution or a contribution to a Roth.
What else can you do? Open up a 529 plan with you
listed as the owner and beneficiary.

What happens if there is still money in a 529 after the
beneficiary has completed their education? You can use
these funds for future generations.
You can move the beneficiary up or down the family
tree, naming the beneficiary's child, parent, or even
yourself as the replacement beneficiary. Account beneficiaries can be changed as many times as you want
and not create any tax implications with that process.
This means that any excess funds in your 529 plan can
remain there to be passed down from generation to
generation in your family (unless your 529 plan has a
restriction). 

Yes, you can be both the owner and beneficiary of a 529
plan, and here's why you should.
1. Your contribution gets you a state tax deduction
or credit depending on your state rules. In Pennsylvania, it's a deduction up to $15,000 (that gift
tax limit again).
2. Your account grows tax-deferred with compounding
returns as long as you keep money in the account.

The author is a financial consultant with CURO
Wealth Management

3. When you withdrawal the money in retirement, you
will incur a tax (just like it would from the retirement
account) and 10% penalty because the money is not
being used toward qualified education expenses. BUT
your income tax bracket will potentially be lower since
you're no longer receiving income from employment.
You will also only pay the tax and penalty on the
earnings portion, not on what you put in.
* Note that each withdrawal from the 529 plan
contains a pro-rata portion of earnings and
principal. You cannot just take out the principal
and avoid the tax and penalty.

The fees, expenses, and features of 529 plans can vary
from state to state. 529 plans involve investment risk,
including the possible loss of funds. There is no guarantee
that a college-funding goal will be met. In order to be
federally tax-free, earnings must be used to pay for
qualified higher education expenses. The earnings portion
of a nonqualified withdrawal will be subject to ordinary
income tax at the recipient's marginal rate and subject to
a 10-percent penalty. By investing in a plan outside your
state of residence, you may lose any state tax benefits.
529 plans are subject to enrollment, maintenance, and
administration/management fees and expenses.

SUMMER 2018

Table of Contents for the Digital Edition of Bucks Writs - Summer 2018