Dear Liz: We put four kids through college using 529 college savings. All four are out of college with good jobs and we have about $50,000 left over. Would you suggest just letting it build for the grandkids’ college in 20 to 30 years? The amount should grow considerably in that time and may pay for all the grandkids’ college expenses as well.
Answer: You have a number of options with leftover 529 funds, including eventually changing the beneficiaries to your future grandkids. Since none have been born yet, and may not be for a while, you can just leave the accounts alone to grow for now.
In addition to paying qualified college education expenses, up to $10,000 per year of 529 funds can be used for private school tuition for kindergarten through 12th grade. In addition, up to $10,000 per beneficiary can be used to repay student loans.
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If you do decide to earmark funds for the grandkids, you may want to think about the best way to divide the money. You may not know for a while how many grandkids you’ll have. It’s entirely possible for the first grandchild to reach college age before the last one even comes along.
Another option that’s new this year is to use the leftover 529 money to fund Roth IRAs for your children, the original beneficiaries. If the account has been open at least 15 years, each year you can roll over an amount equal to the contribution limit, which for 2024 is $7,000. (The lifetime rollover limit for each beneficiary is $35,000.) This assumes the beneficiary has earned income at least equal to the rollover amount.
Protecting a daughter’s inheritance
Dear Liz: We need help knowing what to do regarding leaving our home and money to my unmarried daughter. She has had a boyfriend for over 15 years. How can we protect her inheritance so he can’t claim half?
Answer: Inheritances are considered separate property. So her inheritance could be considered hers alone even if your daughter marries this guy and lives in a community property state where other income and assets accumulated during the marriage would be considered joint property.
She might have to be careful not to commingle funds, however. A partner who contributes toward a mortgage on a house might have a claim on the property, for example.
Please talk to an estate planning attorney who can assess the situation and give you — and your daughter — personalized advice.
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Social Security survivor benefits
Dear Liz: You recently wrote that someone’s Social Security survivor benefit would be the same as her spouse’s, including the 8% annual delayed retirement credits and cost of living increases. My husband just took his Social Security at age 70 but we were told I wouldn’t get his full survivor benefit as I took my own benefit at age 62. Is it because in the other question, the wife took her benefit at her full retirement age of 66 years and 8 months? So confused with all the rules!
Answer: The rules are certainly confusing, but the advice you got was wrong.
Your early start certainly reduced your own retirement benefit, but doesn’t reduce your survivor benefit. If your husband dies first and has the larger benefit, you’ll get a survivor benefit equal to his check and your retirement benefit will cease.
What does reduce survivor benefits is starting them early. Survivor benefits can start as early as 60, but you don’t get the full amount until you’ve reached full retirement age. (Full retirement age was 66 if you were born from 1943 to 1954. Between 1955 and 1959, full retirement age increases by two months each year; for people born in 1960 and later, full retirement age is 67.)
If you’re already past your full retirement age, you don’t need to worry about a reduced survivor benefit. If your husband dies before you reach full retirement age, the correct claiming strategy depends on your situation. Consider getting expert advice about when to switch to the survivor benefit.
Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.
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Concepts from the Article
The article discusses various concepts related to college savings and inheritance planning. Let's break down some of the key concepts mentioned:
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529 College Savings: The article mentions using a 529 college savings plan to put four children through college. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education expenses. Contributions to a 529 plan grow tax-free, and withdrawals are also tax-free when used for qualified education expenses.
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Leftover 529 Funds: The article addresses what to do with leftover funds in a 529 plan after all the children have finished college. One option is to let the funds continue to grow for future grandchildren's college expenses.
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Changing Beneficiaries: The article suggests changing the beneficiaries of the 529 plan to future grandchildren once they are born. This allows the funds to be used for their education expenses.
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Qualified Education Expenses: The article mentions that 529 funds can be used for qualified college education expenses. Additionally, up to $10,000 per year of 529 funds can be used for private school tuition for kindergarten through 12th grade. It is also possible to use up to $10,000 per beneficiary to repay student loans.
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Division of Funds: The article suggests considering the best way to divide the leftover funds if they are earmarked for future grandchildren. Since the number of grandchildren is unknown, it's important to plan accordingly.
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Using 529 Money for Roth IRAs: The article mentions a new option to use leftover 529 funds to fund Roth IRAs for the original beneficiaries (children). If the 529 account has been open for at least 15 years, it is possible to roll over an amount equal to the contribution limit into a Roth IRA each year.
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Protecting Inheritance: The article addresses the concern of protecting an unmarried daughter's inheritance from potentially being claimed by a long-term boyfriend. Inheritances are generally considered separate property, but it's important to be cautious about commingling funds to avoid potential claims on assets.
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Social Security Survivor Benefits: The article discusses survivor benefits and clarifies that taking one's own retirement benefit early does not reduce the survivor benefit. If a spouse dies and has a larger benefit, the surviving spouse will receive a survivor benefit equal to the deceased spouse's check.
These are the main concepts covered in the article. If you have any specific questions or would like more information on any of these topics, feel free to ask!
