With colleges starting the fall semester around the country, worries about paying for higher education and making ends meet often come to students’ minds. Family members, like parents and grandparents, will often want to help their loved one pay for college if they are able to; however, at the same time, they do not want to do so at a detriment to their own financial future. One popular method to help a student with their college costs is a qualified tuition plan. A qualified tuition plan is a type of Houston estate planning tool that allows a person to contribute to another’s higher education expenses without having to pay taxes on these contributions.
What is a Qualified Tuition Plan?
A qualified tuition plan lets a loved one, called a contributor, to either prepay their student’s qualified expenses at an educational institution or to contribute to a designated account to pay these costs. A contributor can put their funds toward tuition as well as fees, books, supplies, and equipment required to participate in the educational program. However, contributions to a qualified tuition plan cannot exceed the amount necessary to provide for the beneficiary’s expenses.
These plans are established and maintained by the state of Texas or the qualified education institution itself. However, qualified tuition plans created by a school can only be to allow a contributor to prepay education expenses. Generally, an eligible educational institution is any college, university, vocational school, or post-secondary institution that is eligible to participate in a student aid program administered by the Department of Education. For those who have loved ones in kindergarten through 12th grade, funds can be placed in a qualified education plan to help pay for a person’s enrollment or attendance at an elementary or secondary public, private, or religious school.
There are many benefits to establishing a qualified tuition plan. For one, earnings that accumulate in the account are tax-free. Additionally, the person receiving the funds generally does not have to report these earnings as income, and the funds are not taxable when used to pay for higher education expenses. Creating a qualified tuition plan not only benefits the student, who is receiving financial support to aid them on their education journey, but also the contributor who knows they are helping their loved one in a responsible manner. Not only that, contributing to a qualified tuition plan can help reduce the overall value of an individual’s estate, reducing the amount of estate taxes. However, contributions to a qualified tuition plan will likely count towards the annual gift-tax limit, so care should be taken in how the contributions are made.
Because qualified tuition plans are quite nuanced, it is critical to consult a knowledgeable attorney who can help create a plan that will help reduce a student’s stress about paying for school.
Are You or a Loved One Interested in Creating a Houston Qualified Tuition Plan?
If you have a child or grandchild who you want to help, contact the skilled Houston estate planning attorneys at McCulloch & Miller, PLLC. With decades of experiencing handling estate planning, trusts, and qualified tuition plans, our attorneys will work tirelessly to help you. We understand the stress that comes with worrying about higher education finances, and we will create a plan that fits your family’s needs. To explain your situation and speak to an experienced attorney, call our office at 713-333-8900 today.