Your husband’s receipt of an inheritance, combined with the recent sale of a piece of commercial property on your part has started the two of you thinking about upping the amount you’ve been contributing towards your grand-nieces’ college fund. (With no grandchildren of your own, you have, for the past few years, been making gifts to an Indiana 529 plan for each of your husband’s brother’s twin granddaughters, claiming the 20% state income tax credit for those education gifts.)
While you had originally talked about making 2025 joint gifts of $38,000 to each of the girls’ accounts, you read in a tax newsletter that one can “front load” 529s by putting in five years’ worth of contributions. However, even using the inheritance and the property sale profits, you’d need to sell off some jointly held investments to accomplish such a contribution, and that is causing you to weigh different factors before coming to a decision.
Now both in your late 70s, you have enjoyed good health. At the onset of your retirement from full time employment a decade ago (you each still do some consulting work), you oversaw the completion of a major update to your home to make it more age-appropriate; it is not likely that major house-related expenses lie ahead.
Knowing that you would still “control” the accounts and be able to use the money yourselves in case of some unforeseen turn of events or health emergency, you like the idea of letting your contributions more time to grow tax-free* inside the 529s before the girls actually begin their schooling.
Since the 5-year Gift Tax Election allows donors to make this large contribution without affecting your lifetime gift tax exclusion; you might discuss your plan with an estate planning attorney. The total 529 “frontloaded” gift would be $19,000 per year, per beneficiary, or $95,000 for the five-year plan for each grand-niece, a total of $190,000.
Since the Federal Housing Administration has raised the national lending limit on reverse mortgages to $1,209,750, you might consider using a portion of your housing wealth to help you achieve your 529 funding goal. The unused portion of your reverse mortgage loan will continue to grow at the same rate as the interest as that being charged on the borrowed portion of your equity.
“Rerouting” a portion of the equity that has been building up in your home in the past can help you fund the two 529 plans in the present, helping your grand-nieces’ prepare for the future.
*Please consult a tax advisor. David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org
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