Kevin Daniels
Vice President,
Main Street Financial
Give Them A Gift They Don’t Throw Away In April.
The Problem: As we chisel away at the days before Christmas, my children (and children everywhere) wind themselves up for Christmas, presents, and pure ‘ole anticipation of gift-wrap flying through the air. We all enjoy seeing those little eyes wild with excitement…anxious to see what’s in the next package. Pure exhilaration and thrills with each gift.
Then comes April of the following year. The batteries are dead, Barbie® is missing one leg and both arms, the doll whose has hair that is supposed to grow is now bald, their favorite book has the last nine pages ripped out, the new paints are dried up, the game dice are missing and the dog chewed Cuddly Bear’s head off!
Life note: Inexpensive toys can be great fun, but are usually forgotten quickly.
A Solution: There’s no replacement for opening toys, and I’m not suggesting that there is. Kids love fun, and toys are fun…for a while anyway. But this year why not supplement those toys with something long lasting? Why not give someone that has lots of time (i.e. a child), a gift that needs time. Enter the Internal Revenue Code Section 529. Typically called a “529 Plan”. These plans have many, many variations depending where the assets are invested, what state they are sold in, etc. In a nutshell a 529 plan is used to save Federally TAX FREE for technical school, college or qualified higher education expenses. There have always been ways to gift money to children but this is certainly new and improved over earlier vehicles.
Say for example Grandma/Grandpa, Mom/Dad, Aunt/Uncle or some other family member decides to open a “529” for little Joshy. The money can be invested in multiple different choices and is allowed to grow Federally tax free. Behind the scenes, the donor makes investment decisions for little Joshy while he’s busy riding his bike. Then let’s say 16 years later little Joshy, (now called Josh) decides he is not interested in higher education even a little bit. The donor/custodian can change the beneficiary to Josh’s sister, or his brother, or even take the money back! The donor has retained control of the funds, and protects Josh at the same time.
I often see clients that have Uniform Gift To Minor’s Act Accounts (UGMAs). Then they realize their Josh has no interest in higher education and wants to use his UGMA money (which in Missouri is theirs at age 18) to buy a diamond ring for his new girl friend the mud wrestler. These lavish expenditures with mom and dad’s hard saved money might be better gifted to someone with more vision. 529 plans allow the donor to retain control, as long as necessary. All of the benefits of a 529 plan are well beyond this article, but at least you have the idea.
Few children are going to be ecstatic about opening an envelope labeled “Your 529 Gift”, but it won’t be thrown away!
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