Parents Are Rolling UTMA & 529 Plans into a Trust Due to These Tax Credits

Posted by Tyler Phelps, Vice President of Eastern Point Trust Company on Mar 25, 2016

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The Shortcomings of Traditional College Saving Plans

Before trusts became a cost-effective tool for parents to save their child’s future education costs, accounts such as UTMA/UGMA and 529 plans were heavily used. 529 plans are the result of federal legislation that allowed parents to set money aside for college. However, time has shown that the high fund cost, limited investment selection, extra fees imposed by the states and restrictions of investment changes materially undermine the performance of 529 accounts. Fortunately, there is a simple, affordable, and prudent solution to their dilemma – college savings trusts.

Using Trusts to Save For College Expenses

Trusts are great tools for parents or grandparents with a desire to jumpstart their loved one’s future by saving for college expenses and beyond. Trusts can:

  • Protect assets from creditors
  • Limit the use of money for specific purposes beyond education (while the grantor is living or deceased)
  • Be named as the beneficiary of life insurance policies, 401k plans, IRAs, brokerage accounts, bank accounts, and more
  • With a properly drafted trust reserve the student’s eligibility for student aid and maximize their FAFSA awards, grants, and scholarships
  • Earn up to $600 in LTCGs, tax exempt, as of 2016

The student reaps the benefits of the college savings trust without any of the negative financial aid implications that UTMA, UGMA, and 529 plans carry. It gets even better! The trust can also safeguard the student’s eligibility for both of the federal educational tax credits, when properly drafted (like a Kiss Trust).

Parents can benefit from these educational tax credits

 The American Opportunity Tax Credit:

  • Can be utilized throughout a student’s first four years of college while pursuing an undergraduate four-year degree
  • Is worth up to $2,500 toward tuition, course-related books, supplies, and equipment
  • Can be refundable up to 40%, or $1,000, even when the student owes no taxes for the given year

Learn more about the American Opportunity Tax Credit.

The Lifetime Learning Tax Credit:

  • Can be claimed for an unlimited number of years while the student is pursuing a postsecondary degree
  • Is worth up to $2,000 toward tuition, course-related books, supplies, and equipment
  • Can’t be used with the American Opportunity Tax Credit (which is usually a higher value)

Learn more about the Lifetime Learning Tax Credit.


Problems for Parents with UTMA Accounts

Get Started

Take advantage of these tax credits while benefiting from the control provided for by a College Savings Trust. With a Kiss Trust, you can create an educational trust for your child, grandchild, or family and friends for a one-time fee of $49. TrustWare™, brought to you by Kiss Trust, hands anyone the power to build unique trusts without the help of an attorney, saving you time and money. Get started today, or chat with our support team to learn more!

Start a Kiss Trust today for just $20 (which is regularly $49) click here for more information.

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Tags: College Savings, UTMA

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