“Is COVID-19 creating an education planning crisis?” asks Tim Maurer in a recent issue of Forbes. Maurer thinks it is. “Few things in our lives have been so dramatically altered throughout the COVID-19 crisis as school and education.” Even before COVID-19, household income had not kept up with tuition inflation, an annual study by the National Association of College and University Business Officers showed. On the other hand, the “silver lining” in terms of college planning, Maurer points out, is the low interest rate levels.
At Geyer Law, we have always found education planning to be an important part of estate planning, with many grandparents looking for ways to provide direct help to grandchildren or at least to help their children shoulder that burden. There are pitfalls to avoid in terms of making sure grandparents’ help does not prevent the young students from qualifying for financial aid.
While Uniform Gift to Minors accounts, loans to parents, and direct tuition payments have been considered in our planning sessions, one key topic has always been 529 plans. By way of review, Section 529 or “qualified tuition plans” are sponsored by states or by educational institutions. In Indiana, as in many other states, taxpayers are eligible for a state income tax credit for contributions to a 529 plan.
The SECURE Act, signed into law at the end of last year, includes provisions that help families saving for college, as well as college grads with outstanding student loan debt. Three very important new provisions include:
1. The definition of “qualified higher education expenses” now includes student loan payments. That means 529 holders can withdraw any remaining savings and put that money towards not only their own student loan debt, but that of their children, grandchildren, or spouses. The lifetime limit for that use is $10,000 per 529 beneficiary plus $10,000 for each of the beneficiary’s siblings or step-siblings.
2. 529 funds may now be used to pay for expenses related to apprenticeship programs such as trade schools and vocational programs.
3. Qualified “higher” education expenses now include tuition for elementary or secondary school, as well as for K-12 tuition at a private or religious school, up to a limit of $10,000 per beneficiary per tax year.
COVID-19 may indeed have created an education planning crisis, but the SECURE Act has opened up a host of new options for education-related estate planning.
– by Rebecca W. Geyer
