Handed Edition: Grandparents 529 Tax Deduction

Saturday, October 31, 2020

Grandparents 529 Tax Deduction

If youre a New York taxpayer and a Direct Plan account owner you can deduct up to 5000 10000 if youre married filing jointly of your account contributions when you file your state income taxes If the childs parents invest your college savings gift in an existing 529 account you wont be. 529 plan contributions are not deductible at the federal level but over 30 states offer a tax deduction or credit for contributions.

Navigating 529 Plan Rules For Grandparents

Are 529 plans tax deductible for grandparents.

Grandparents 529 tax deduction. That means that you can contribute up to 15000 per spouse before you have to file a gift tax return Hoffman said. However some states only allow the 529 plan account owner to claim the deduction. If the grandparents are married they can contribute up to 30000 per year without triggering the federal gift tax.

Funds that are withdrawn to pay for qualified educational expenses wont be taxed as income. Yes grandparents can claim the deduction for contributing to a 529 if they live in one of the 34 states that offer a state income tax deduction for 529 college-savings plan. So if a grandparent contributed 50000 to a 529 and.

So parents and grandparents you can make a combined contribution of. More than 30 states and the District of Columbia offer a state income tax deduction or credit for contributions to a 529 account even one that is owned by someone else such as the childs parent. Families should note that while the federal government does not reward 529 contributions it does penalize early withdrawals.

If grandparents contribute to the parents 529 college savings plan the money is considered a parental asset when calculating the Expected Family Contribution EFC for federal financial aid. Grandparents and other contributors do not receive a federal tax deduction for contributions that they make to a 529 plan. 1 As grandparents are you still making contributions to the 529 plan.

3 This means that if a grandparent contributes 5000 to their grandchilds 529 in a given tax year they can receive a tax credit of anywhere from a few hundred dollars to 1000 or more. That income could reduce the amount of financial aid the student qualifies for by as much as half of. In order to claim the state deduction for the contribution you must be the owner of the 529.

Unfortunately the federal government does not allow families to deduct contributions to a 529 plan. It is common for grandparents to contribute to their grandchilds college education sometimes in the form of contributions to a 529 plan. So they count for up to 56 of assets versus 20 for a student asset which is how they would be counted for a custodial account.

Speak with a CPA or licensed tax professional to see if this option makes sense for your specific. There is no indication that this rule will change anytime soon. A grandparent can contribute up to 15000 per year to each grandchilds NC 529 Account.

If the answer to this question is yes we would not recommend transferring the entire account just yet. Yes grandparents can contribute to the GA Path2College 529 Plan accounts not to exceed 2000 per beneficiaryIf they are GA residents they will receive a deduction on their return for the amount contributed. Certain states allow anyone who contributes to a 529 plan to take a deduction while others states only permit a tax deduction for account holders.

Contributions to 529 plans are tax deductible in 34 states. Contributions made during the tax year or before the following years federal tax filing deadline are eligible for the deduction. So if each grandparent makes a maximum individual contribution thats a potential 60000 untaxed gift from four grandparents to go toward college.

So grandparents will need to do a little research to know their specific answer before deciding whether or not to contribute to their grandchilds 529 plan. Yes 529 plans accept third-party contributions so a grandparent may contribute to a grandchilds 529 plan account regardless of who owns the account. More than 30 states and the District of Columbia offer a state income tax deduction or credit for contributions to a 529 account even one that is owned by someone else such as the childs parent2 This means that if a grandparent contributes 5000 to their grandchilds 529 in a given tax year they can receive a tax credit of anywhere from a few hundred dollars to 1000 or more.

Other family members and friends also can gift your children contributions for their NC 529 Accounts on birthdays and special holidays. In addition each of these states has differing stipulations on whether only the 529 account owner can take a deduction or if anyone who contributes to the 529 is eligible for the deduction. Additionally grandparents can now make larger one-time contributions to 529 plans spread out over five years to take advantage of new tax breaks.

That also applies to earnings on the contributions. When a grandparent opens a 529 plan with the grandchild named as the beneficiary distributions are considered untaxed income to the student. The grandparent will no longer have access to the funds contributed to a grandchilds parent-owned 529 plan account since they are not the 529 plan account owner but for many grandparents that is an entirely acceptable consequence.

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