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529 Plans Equalized, Estate Planning Should Adjust Accordingly

Last update on: Aug 10 2020

The recent deficit reduction law gave a boost to 529 prepaid college plans,and Estate Planning strategies should be adjusted accordingly.

There are two types of 529 plans: prepaid plans and savings plans. Under prepaid plans, the state guarantees that tuition and fees are covered by an amount determined today, even if inflation or investment returns are different from what was anticipated. The well-known savings plans invest deposits from an adult. The amount in the account fluctuates with the success of the investments.

Previously, the savings plan was treated as an asset of the adult, so only up to 5.64% of it reduced financial aid. The prepaid plan was an asset of the student and reduced aid dollar for dollar.

Under the new law neither type of plan is treated as the student’s asset under the federal formula. Each is treated the way savings plans were treated before the law. This could encourage more use of prepaid tuition plans.

Bob Carlson is the editor of the monthly newsletter, Retirement Watch, the monthly video series, Retirement Watch Spotlight, and a weekly free e-letter, Retirement Watch Weekly. In these, he provides independent, objective research covering all the financial issues of retirement and estate planning.

Mr. Carlson, is also Chairman of the Board of Trustees of the Fairfax County Employees’ Retirement System, which has over $2.8 billion in assets, and has served on the board since 1992. He was a member of the Board of Trustees of the Virginia Retirement System, which oversaw $42 billion in assets, from 2001-2005.

Carlson is an attorney. He received his J.D. and an M.S. (Accounting) from the University of Virginia and received his B.S. (Financial Management) from Clemson University and passed the CPA Exam. He also is an instrument rated private pilot. He is listed in several recent editions of Who’s Who in America and Who’s Who in the World



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