A 529 plan is a very common planning technique used by grandparents to fund a grandchild’s college education. Simply stated, contributions to a 529 plan grow tax-free over the life of the plan and if used for qualified tuition costs, the distributions from the plan are also tax-free.
Notwithstanding the beneficial tax treatment of a 529 plan, they are not given favorable treatment under the Medicaid rules. If you are the owner of a 529 plan and seek eligibility for Medicaid to cover the cost of your care, whether at home or in a nursing home, the value of the account is treated as your asset.
This could have a disastrous effect on your plan to help finance a grandchild’s college education. If you are someone who intends to assist a grandchild through college, you may want to consider alternatives to owning a 529. One viable option would be to transfer the money to your child who can then contribute the funds to a 529 plan owned by them. Moreover, in New York, your child might benefit from a deduction on his tax return which, depending on the amount and type of income you have, might not benefit you.
Questions may also be submitted to smd@mfd-law.com for a response.
