As the cost of higher education continues to rise, families are increasingly turning to 529 plans as a tax-advantaged tool to save for their children’s future educational expenses. However, navigating the intersection of 529 plans and gift taxes requires careful consideration and understanding. The FAFSA Simplification Act, an overhaul of the processes and systems used to award student aid, will become finalized in the 2024-2025 school year. Previously, distributions from a grandparent’s 529 plan were reported as untaxed student income, which could reduce student eligibility by up to 50% of the distribution amount — a significant penalty. For example, under the old rules, a $10,000 529 plan distribution could reduce your grandchild’s aid eligibility by $5,000. With the new streamlined FAFSA, there’s a difference in how distributions are treated compared to previous years, giving grandparents a positive advantage. On the 2024-25 FAFSA, students are no longer required to report cash gifts from a grandparent or contributions from a grandparent-owned 529 savings plan. Because of this, grandparents can now use a 529 plan to fund a grandchild’s education without impacting their financial aid eligibility. In fact, with the new FAFSA form, a student’s total income is based only on data from federal income tax returns via the IRS. Therefore, any cash support, no matter the source, will not negatively impact financial aid eligibility on the FAFSA. However, at over 200 private institutions that use the CSS profile to award financial aid, grandparents with 529 plans will still be considered. Additionally, 529 plans are subject to gift taxes when they exceed certain thresholds. For 2024, the annual gift tax limit is $18,000 or $36,000 for married couples. This limit applies to each person who is receiving a gift. This means that you can donate up to $18,000 or $36,000 per grandchild each year without owing a federal gift tax. STAY AHEAD OF THE CURVE Gift Taxes Decoded
“I feel like you’re looking out for me and what is the best coverage for my situation. There is a feeling of trust.” –David Schultz “We’ve already passed your info on to three friends who are starting to navigate this What Our Clients Think!
complicated system.” –Angela Sudermann
“Jason and his staff have been a great help in making sure that I’m getting the most out
of my benefits.” –Marta Rodela
MEDICAREBLUEPRINT.COM
2
Made with FlippingBook Ebook Creator