Big Surprise – Seventeen percent of 1,040 retirees surveyed in January 2018 say their health care expenditures in retirement are “much higher than expected” (source: EBRI Retirement Confidence Survey).
Many Years, No Change – The Social Security payroll tax rate paid by employees has been 6.2 percent since 1990 except for a 2 percent reduction in the rate during the two years of 2011-12 (source: Social Security, BTN Research).
Weekly Focus - Today is National 529 College Savings Plan Day
If you’re concerned about funding your child’s or grandchild’s education, here are some things to know about tax-advantaged 529 College Savings Plans:
Advantages: These low maintenance plans let donors control the account and change investments twice a year. While the initial contribution is made with post-tax dollars, the account’s earnings are federal tax-free with qualified distributions. What’s more, over 30 states currently add a full or partial state tax deduction on contributions. Unlike Coverdell Education Savings Accounts and Roth IRAs, 529s aren’t subject to income, age or yearly contribution limits. However, only contributions up to $15,000 per individual per year will be considered gifts for tax purposes.
New this year: Thanks to last year’s Tax Cut and Jobs Act, qualified withdrawals up to $10,000 for tuition to K-12 schools can now be made for each beneficiary per year. Although every state makes qualified withdrawals for higher education tax-free, not all do for K-12 expenses. Even those that do may later reconsider since shorter holding periods could make it difficult to predict state tax revenues and may increase costs to providers. The tax act also allows account holders to roll the annual gift limit amount from an existing 529 education account to an ABLE (Achieving a Better Life Experience) account for a beneficiary who was disabled after the account was funded.
Other useful facts: Plan assets owned by a dependent student or a parent count on the Free Application for Federal Student Aid (FAFSA), but both are considered parental assets. The first $20,000 of parental assets aren’t counted in the Expected Family Contribution calculation; beyond that, up to 5.64 percent are factored (compared to 20 percent of students’ assets). Eligible expenses for higher education include: tuition, fees, books, supplies, computers and room and board. Transportation costs, health insurance and student loan repayments are excluded.
Donors will not lose account funds if a beneficiary doesn’t need them for educational purposes but will incur tax consequences for non-education distributions – unless the beneficiary: receives a tax-free scholarship, attends a U.S. Military Academy or dies or becomes disabled. Donors can also change an account’s beneficiary to another family member or make themselves a beneficiary to further their own education without tax consequences.
Need help determining if a 529 plan is right for you or choosing the right 529 plan? We can answer your questions and guide you through the financial planning process.
The Dorion-Gray Team
Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. a Registered Investment Advisory Firm. Dorion-Gray Retirement Planning is a trade name of Dorion-Gray Financial Services, Inc. located at 2602 IL Route 176, Crystal Lake, IL 60014. Dorion-Gray and the Securities America companies are separate, unaffiliated entities.
Diversification seeks to reduce the volatility of a portfolio by investing in a variety of asset classes. Neither asset allocation nor diversification guarantee against market loss or greater or more consistent returns.
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