One of the things that many people in California creating an estate plan often want to include is a way to pay for the college tuition of their loved ones. Though some people may simply leave a lump sum of money for that express purpose, there may be a better way. One popular option often included in estate planning is a Qualified Tuition Plan.
A Qualified Tuition Plan allots money for the sole purpose of covering tuition and is not subject to tax until distribution, provided the amount saved meets the threshold for taxation. The plan can be prepaid, meaning tuition can be “purchased in advance” at a specific school, which can save money as tuition rates continue to rise. The plan could also be a savings plan that grows or declines the same way an IRA account might.
The plan can be used for tuition, fees, books and other required expenses. If the person who created the plan wants to change beneficiaries, there won’t be any additional tax. As for how these plans are taxed, the contributions are considered a gift, which means they are subject to annual gift tax parameters. Currently, $15,000 per person per year can be contributed, tax free. Experts advise those considering this option to appoint an alternate custodian in case they pass on before the beneficiary goes to college.
It is understandable that people would want to ensure that their loved ones had the means to access higher education. A Qualified Tuition Plan is just one option to consider. Those here in California considering this choice who want more information about it and other possibilities may want to talk with an estate planning attorney. A knowledgeable attorney can help determine the best choice for a specific person’s unique situation.