The cost of education in North Carolina and around the country only continues to rise, and for families with young children, the prospects can seem daunting without having a long-term plan. The most popular and familiar ways of saving for higher education are the tax-advantaged 529 plans, which receives sponsorship at the state level or through a state agency.
While 529’s are more familiar, they are not the only avenues for savings, so grandparents and other extended family may also want to consider these options. Other ways of savings that are more flexible but not as specific may be preferable, depending on the family’s unique needs. Residents of Durham-Chapel Hill can benefit from valuable tips for preserving assets for your loved ones.
Options for asset preservation
The most common ways of saving for college are 529s and trust accounts. There are two types of 529 plans, one being a prepaid tuition plan that allows families to pay tuition ahead of time at current tuition rates (not every state offers this type), and a savings plan that allow the participant to invest college savings in various mutual or bond funds, or exchange-traded portfolios.
Trust account plans, on the other hand, are custodial trusts that hold savings for children to be allocated where needed. The Uniform Gift to Minors Act (UGMA) holds securities while the Uniform Transfer to Minors Act (UTMA) may hold other assets.
A third avenue for asset preservation that is not specific to education but may also go toward tuition or other college-related expenses, is a gifting trust. This is an irrevocable trust set up with the child as beneficiary until they reach the age of maturity. A gifting trust must file income tax returns, which is paid for with trust funds.
With this option, there are many ways to invest trust assets. Distributions can go not only for education but also for medical expenses or other support, and a gifting trust can also hold life insurance or pour-overs from other wealth transfer mechanisms.
North Carolina 529 plans
In North Carolina, the Participant does not have to be a resident of the state or an SECU member to open an NC 529 Plan. The beneficiary of the plan must have a valid SSN or TIN and has no access to or control of the account. It is the Participant who controls allocation of funds and beneficiary designations.
The Participant may withdraw funds for Qualified Education Expenses, which are not subject to state or local taxes, for the payment of:
- College expenses, tuition, fees, books, or room and board
- Trade school expenses if they are on the Federal Student Aid school list
- Apprenticeship programs registered with the U.S. Department of Labor, or State Apprenticeship Agency
- K-12 tuition of up to $10,000 per year per child
- Special-needs equipment
- Student loan payments of $10,000 per child
Funds may be used for North Carolina or out-of-state school expenses, including some international schools.