Matching Grants and a Strategy for Withdrawals
Charlie’s six children range in age from 20 to six. He created Learning Quest accounts for all of them in 2011 after inheriting money from his grandmother. He knew he wanted to save the funds for his kids’ education.
By the time Charlie’s first-born started college in 2019, she had approximately $7,000 invested. His youngest child already has $10,000 in her account, and Charlie hopes she’ll have much more by the time she goes to college. His advice to other parents? Start investing early. It makes a difference.
Admitting he was “financially illiterate” at the time he inherited his grandmother’s IRA, Charlie talked to his accountants and learned how he could use the required annual distributions to set up 529 plans for education expenses. He also found out Kansas matches up to $600 of contributions for those who qualify.
“We filled out the paperwork, qualified and set up direct deposits from my paycheck,” Charlie said. Each of his children has a 529 account, plus a K.I.D.S. matching grant account. When his eldest daughter started college two years ago, he set up automatic payments so the funds transfer from his daughter’s 529 plan to the family’s bank account, and then from the bank to the university.
Learning Quest advisors made sure Charlie understood his family’s matching grant eligibility would end once they started withdrawing funds from the K.I.D.S. accounts. Based on that crucial detail, Charlie is using the 529 funds first so his family can benefit from the matching grant program for as long as possible. This strategy calls for moving funds from the younger children’s 529 accounts into the older children’s accounts who need the money sooner. There’s no penalty for doing so, as long as the funds are used for the children’s qualified education expenses, whether they’re in grade school, high school, college or a vocational school. This flexibility – and the guidance from Learning Quest – is helping Charlie and his wife meet their goal of sending their six kids to college with as much support as possible.
“We want them to go learn how to think so they can make good decisions and grow up to be the people God intended them to be. That’s worth an investment. It’s an investment not just in our kids, but in society, because we’ll be putting our kids on a path to help make the world a better place.”
As with any investment, withdrawal value may be more or less than your original investment.
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The availability of tax or other state benefits (such as financial aid, scholarship funds and protection from creditors) may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.
The earnings portion of non-qualified withdrawals is subject to federal and state income taxes and a 10% federal penalty.