You want to help your grandchild or friend’s child on their path to college — excellent! But it can be difficult to know whether it’s better to contribute to an existing account or open a new one. You want to know the pros and cons — like how does your grandchild or friend’s child get the money or what happens if they don’t go to school? And what are the tax implications for your estate? The Michigan Education Savings Program (MESP) accounts for all this and more.
Why Save with MESP
With MESP, you decide how to help. If you want to own the account, you don’t need to be a parent — anyone can start an account for a loved one. You can set up a college fund for a grandchild or family member, or you can contribute to a friend’s account. As the Account Owner you will control how the money is invested and how it gets spent. Since there is no age limit attached to a 529 plan, you get more options. For instance, if you opened an account for your grandson but he doesn’t end up going to school you can let the funds remain in the account until he does, use them yourself to take those community college writing courses you have been meaning to, or transfer the funds to another grandchild or loved one.
On the other hand, if you just want to support an existing MESP account, anyone can make a gift contribution to anyone else’s plan. Either way, the earnings portion, if any, on that investment can grow free from federal and state income tax. Qualified withdrawals come untaxed as well, and you can spend the money on a lot more than tuition, including: room and board, computers and related technology expenses, supplies, books, and equipment.
What MESP Means for Estate & Legacy Planning
You might find you want to make a larger donation to your grandchild’s account but you’re hesitant to commit. What will it mean for you come tax time? What are the implications to your estate? Don’t worry, you can give with confidence and it won’t adversely impact your tax situation. In fact, there’s no federal gift tax on contributions up to $15,000 per year for single filers and $30,000 for married filers.
If you wish to make a larger contribution, there’s an option to gift amounts up to $75,000 for single filers and up to $150,000 for married filers if pro-rated over 5 years. This means you could make a one-time gift equivalent to the 5-year amount and it could all qualify for the federal gift tax exclusion. Consult your tax advisor.
Gifting — Make a Contribution to an Existing Account
Children grow out of clothes so fast. Toys are lost and discarded. Books may or may not be read. But making a gift contribution to a child’s college education will last a lifetime. There are so many perfect opportunities to give: birthdays, holidays, graduations, and other important occasions. And making a gift contribution is easy. You may gift into a current MESP account by downloading an Additional Contribution form and mailing it in with a check. You may also ask the account owner for a Ugift code to make online, secure contributions as often as you would like. Complete your gift by downloading one of our gift of education certificates and presenting it to your loved one for their special occasion.
Please note that if you are not the account owner, our college savings specialists can answer your general questions. Any account-related questions or trouble-shooting must be coordinated with the account owner.