Finding the Right Savings Plan for Your Children or Grandchildren

There are many ways to prepare for elementary, secondary and college expenses for your children or grandchildren. So far, we’ve discussed Coverdell ESAs, Gift to Minor (UTMA) accounts and Section 529 plans. This month, we offer some tax advantaged options for covering a child’s needs that may not be as well-known. 


About ABLE Accounts

ABLE Accounts are tax-advantaged savings accounts for individuals with disabilities and their families, which can be created as a result of the passage of the Achieving a Better Life Experience Act of 2014 – better known as the ABLE Act. The beneficiary of the account is the account owner, and income earned by the account will not be taxed. A “qualified disability expense” means any expense related to the beneficiary as a result of living with a disability – including education, housing, transportation, employment training and support, assistive technology and other expenses that improve quality of life. 


Direct Payments of Medical and Tuition Expenses  

Gift tax rules under IRS Section 2503(e)(2) do not treat as a taxable gift a direct payment to the provider of medical care or to an educational organization for tuition. Thus, a grandparent or other person may make these payments on behalf of the child with no dollar limit.


Set Up a Trust

Families with more complex situations may want to have an attorney draft a gift trust – which can continue beyond age 21 for the child’s benefit and be used for a wide variety of needs.

As you consider your child’s educational savings plan, you may want to talk to a qualified financial professional, who can help you better understand what’s available and what fits your unique situation. Best results generally involve using a combination of the available options. Whichever savings vehicles you choose, it’s a good idea to get started as soon as possible to meet your child’s financial needs. 

Rob Scharar serves as President and Head Portfolio Manager of Houston-based Commonwealth Funds, as well as President of FCA Corp, a Houston-based financial planning firm founded in 1975. 

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