You had your first child, and so you decided it was time to do your estate planning. After all, though you hope you will not need it for decades, you never know. You have seen the statistics and news reports about car accidents -- you understand the very real threat of unexpected illness and disease.
While you don't consider yourself a pessimist, you know that it's better to plan in advance than to put it off and leave your family without a plan when they need it most.
Because having your child started this thought process for you, one thing you want to add into your plan is a college trust fund. You know that college tuition is just going up and up every year, and you can't imagine how high it will get in the next 18 years. What can you do to put a plan in place to help your child pay? Start by asking the following questions:
What is a Section 529 plan?
This is a tuition plan you can set up for your child that gives you some tax advantages. For instance, many contributions that you make to these plans are tax deductible on your end. When your child starts to take money out of the plan on the other side, these withdrawals are often exempt from income tax, as well. This saves money both for you and your child, putting the maximum amount toward college itself.
What can the money go toward?
It is important that your child understands this college trust has to be used for college. Technically, money must get put toward school-related expenses. These could include things like paying for housing in an on-campus apartment or paying off tuition costs each semester. It is important to follow this rule because only withdrawals for school expenses stay exempt from income tax.
Does the fund make it harder to get financial aid?
If you pass away earlier than expected, your estate itself may not cover all of your child's costs. They may need to get financial aid as well. Is the 529 plan going to make that harder by giving the child more assets?
It will not. These plans are set up to limit interference so that your child can still qualify for aid and use the trust on top of that. This can really help to make college more affordable by bringing in funding from every possible source.
It is never too early to think about estate planning. Remember to consider exactly what you want your money to accomplish and then look into all of the legal options you have to reach those goals for your family.