529--How Do Grandparents Give to Grandchildren?

(This comes right from the www.SavingForCollege.com site)

For grandparents

Instead of opening my own 529 accounts, can I just make contributions to the 529 accounts my children have already established for my grandchildren?

If the 529 plan used by your children accepts “third-party” contributions, then you may simply make your contributions to their accounts and not have to worry about opening and maintaining your own accounts. Of course, you will no longer have access to these funds since you will not be the account owner, but for many grandparents that is an entirely acceptable consequence.

To make contributions to an account owned by someone else you will need to know the account number and indicate that number on your check. For most 529 plans you should also use the contribution form that is either pre-printed than sent to the account owner or perhaps can be downloaded from the 529 plan’s web site. It would be a good idea to call the plan’s toll-free number and make sure you are following the appropriate procedures in making your contribution.

A very small number of 529 plans may not accept third-party contributions. If the parents have their own accounts in these particular 529 plans, your options are to open your own accounts or give the parents cash with the request that they place your gifts into the 529 accounts for your grandchildren.

You should be sure to understand the gift-tax consequences of your contributions to the 529 plan. Whether you contribute to accounts owned by you, or to accounts owned by the parents or someone else, your contributions are a gift from you to the account beneficiary (and a generation-skipping transfer if the beneficiary is your grandchild). For large contributions (over $14,000) you may elect on a gift-tax form to treat up to $65,000 of the contribution as made over a five-year period. This election allows you to frontload more contributions into a 529 plan without exceeding the $14,000 annual gift exclusion.

Caution: The IRS has not yet indicated whether a contribution you make to a 529 account owned by someone else will be treated as two gifts, the first from you to the account owner, and the second from the account owner to the beneficiary. Most tax practitioners believe there is only a single gift—from you to the account beneficiary—but the answer remains a bit uncertain.

State tax deductibility of your contributions is another issue you should understand. Many states provide their residents with a deduction for at least some of their contributions to the in-state 529 plan, but in several of these states you must also be the account owner in order to claim the deduction. And just because you cannot claim the deduction, as a “third-party” contributor, it does not mean that the account owner can claim the deduction.

Market Decline Perspective From Gary P and Bill O'Grady

Good morning.  The U.S. stock market has declined significantly this week, reacting to several factors.  I believe the markets must "correct" occasionally (dropping 10% or so from recent highs), and it's been a long time since that has happened (~mid-2011).  This may be the time for it, and we could be a good deal of the way through it already.

Still, I recommend long-term investors remain invested and diversified.

Trying to time the market is risky and the results are usually not successful.  There is Nobel Prize-winning research supporting the "asset allocation" methodology I employ for most of my clients' long-term money (retirement, college savings).

As is often the case, Bill O'Grady of Confluence Investment Management offers a brief and helpful view of current conditions:  http://confluenceinvestment.com/assets/docs/2015/daily_Aug_21_2015.pdf

If you have any questions, please contact me.  Thank you, and happy Friday!

--Gary

P.S.--Are you prepared for financial emergencies?  Let's make sure we're evaluating your cash reserves, your Disability Insurance, your Life Insurance, and your estate plan.  I don't sell insurance and I don't draft legal documents, but I will coach you on how to make sure you buy the right product and have the right documents in place.  No charge--it's part of the value I want to add to the investment advice already being provided.

Garo Linck Partoyan

Potomac Wealth Strategies, LLC

(703) 746-8195 direct

Visit us online for helpful ideas and information!

Insurance: How Much Do You Need?

Make sure you have enough life insurance, everyone. $1mm of investible assets for every $50k you need to spend each year. If you need $50k per year of spending money to replace your wife's income if she dies (to be expected if she makes a salary of, say, $75k), you need $1mm nest egg. If you have $200k in your portfolio and savings plus her retirement plan, then you need $800k of life insurance coverage on your wife. Make sure you or your Trust is the beneficiary.

Also, makes sure you have Long-term Disability Insurance, and pay the premium yourself, even if your employer offers to pay it for you as a fringe benefit. Paying it yourself allows you to get the income tax-free; if your employer pays the premium, you will have to pay income taxes on your benefit.

Waste no time with this. Too many people need insurance before they get the right amount.