What Can I Do with Unspent Money in a 529 Plan?

Los Altos Online’s recent article, “How to use up leftover money in a 529 college savings plan,” says there several ways to use unspent money in a 529 plan, while avoiding the taxes and/or penalties. Here are some options to consider.

Graduate school. If your child is interested in an advanced degree, the money can be used tax free, just as it was for college. Any school that gets financial aid qualifies.

Another child. You can change the beneficiary of the 529 plan to another qualifying family member, without any tax implications. If you have other children, the funds can be used to pay for their qualified expenses—even if you have other 529 plans for them. Money in 529 plans can now also be used for elementary and secondary education.

Another relative. You can change the beneficiary to parents, aunts, uncles, nieces, nephews, stepparents and even first cousins. There’s no deadline for using the funds, so you can keep it as a gift for a future grandchild. However, avoid skipping a generation, because that could trigger a tax penalty.

Your own or your spouse’s career. If you’re interested in changing your career or just want to get a new degree in retirement, using leftover 529 funds will let you avoid using other savings.

Estate planning. You can choose to give a 529 account to an heir. You keep control of the account until you pass away and can continue to make annual tax-free contributions up to the gift-tax exclusion amount, provided the account value doesn’t exceed the state’s maximum limit. After you die, the value isn’t counted as part of your estate for estate taxes.

Offset any scholarships. You can withdraw any amount from the 529 plan, up to the value of all scholarships and the 10% penalty is waived, even if you apply years after the scholarship was earned. The earnings are taxable, but because distributions include both earnings and contributions, only part of this will be taxed.

Give the money to your child or spend it yourself. You could just pay the taxes and the 10% penalty and use the money as you please. The earnings are taxed at your child’s rate.

Reference: Los Altos Online (September 18, 2019) “How to use up leftover money in a 529 college savings plan”

Suggested Key Terms: Asset Protection, 529 Education Savings Plan, Estate Planning, Taxes

Continue Reading

Special Needs Family Requires Special Planning

Taking steps to plan for the future, when loving parents will not be there to help their disabled child as they age, is a hard thing to confront. However, planning in advance for special needs family members is vital. An article titled “4 Tips for Estate Planning When Your Child Has a Disability” from Yahoo! Lifestyle offers good insights and information. An elder law attorney with a focus on special needs planning will be an invaluable resource.

Create a letter of intent. This is a letter of instruction that includes information family and friends will need, if you die or become incapacitated. It should list all the information someone would need to step into your life to care for your loved one. That includes information about medications, daily routines, strategies you use for calming and other daily living information that only you know. The goal is for someone to be able to step in and see how your life works with as little stress as possible and make the transition easier.

Meet with an attorney with experience in special needs planning. Most attorneys will meet you for a free consultation. Allow them to help you build a vision for what you want your loved one’s future to look like. They will know how to plan out the future and what documents will be needed.

Create a will. You’ll want to be the one deciding who should be the caregiver for your child, and who should be in charge of your money. Without a will, the estate goes to probate and a judge who does not know you or your child will make these decisions. Having a will ensures that assets are distributed as you intended, and that the care of your child is done by someone you select.

Create a special needs trust. Your attorney will help with this special type of trust, which allows you to distribute funds and property in a way that will not make your loved one lose their government benefits. Your special needs child is not permitted to have more than $2,000 in a bank account or they will become ineligible for Medicaid and Social Security.

Create an estate plan. The estate planning attorney will be able to help you use strategies to transfer assets, after you have passed.

Set up a power of attorney or guardianship. Do you need to take full guardianship of your special needs child, when they turn 18? Can he or she understand money and decisions? Will they ask for help? Supported decision-making is a viable alternative for some families, but you know your child best. If necessary, power of attorney for financial and for medical issues may work better. Talk to an attorney when your child turns 17, so that you can be prepared.

Establish an ABLE Account. An ABLE account ensures that benefits are not jeopardized. The account can hold money to ensure that your child never has more than the permitted number of assets.

Take this one step at a time, as you likely have done throughout your special needs child’s life. It may take a long time to put all of these steps in order, so start now.

Reference: Yahoo! Lifestyle (August 26, 2019) “4 Tips for Estate Planning When Your Child Has a Disability”

Suggested Key Terms: Special Needs Child, Power of Attorney, ABLE Account, Social Security, Medicaid, Elder Law Attorney, Estate Planning Attorney, Guardianship

Continue Reading

The Second Biggest Question about Retirement: Where to Live

Once the decision has been made about when to retire, the next question is where to live during retirement, says CNBC in a recent article “The next big question you need to answer after you decide to retire.”

Living through the experience of finding an appropriate living situation for an elderly parent gives boomers a different perspective on making their own decisions on where to live during retirement. Some people, having gone through this experience, launch companies that help others, including everything from holding estate sales and liquidating possessions to finding home contractors and movers.

The most common comment they hear is, “I wish we would have done this sooner.”

Aging in place is a goal for most retirees, who are attached to their homes and their communities. The idea of moving to a nursing home, assisted living or continuing care community is not appealing at the beginning of retirement. However, the idea of downsizing is becoming increasingly popular as boomers enter their retirement years. A survey from TD Ameritrade found that 42% of Americans plan to downsize in retirement.

A 2018 report from Fannie Mae points to a “mass exodus” of boomers from the 32 million homes they own and occupy, as they leave for rentals, senior care facilities or pass away.

There are two key reasons to get going on the relocation plan: health and money.

The more assets a retired couple has, the more their discretionary spending increases by downsizing. When they stay in a large house, the equity they have in the home is not growing as it might. The seniors could find themselves house poor. Moving into a smaller home cuts housing expenses, including insurance and maintenance.

Health is another issue. If your home is aging-friendly, perfect. However, if your home has a lot of stairs or narrow doorways and if bathrooms and kitchens have not been adapted to be age-friendly, there could be dangers as you age and your physical prowess diminishes.

Mental health is another consideration. If mental health declines, staying in the home without live-in care may become dangerous. Loneliness also is a factor, as people who live in single family homes without activities become lonely. An adult community with all of its activities might be better for both physical and mental health.

The ideal goal: set aside some time to visit these facilities now, before there is any pressing need. You should also start putting your estate plan in order. That includes power of attorney or trust documents. Even if your plan is four or five years down the road, planning in advance can make this large life transition a lot easier.

Reference: CNBC (September 14, 2019) “The next big question you need to answer after you decide to retire.”

Suggested Key Terms: Relocation, Retirement, Assisted Living, Nursing Home, Estate Planning Attorney, Continuing Care Community, Age in Place

Continue Reading