Do I Need a 529 Education Savings Plan?
Most people think of 529 accounts primarily as college savings tools. While they do serve that purpose well—offering flexibility to transfer assets to anyone for educational expenses—these accounts have a lesser-known advantage as estate planning instruments.
Tax Benefits and Estate Planning Advantages
One significant benefit involves reducing your taxable estate, which may help minimize future federal gift and estate taxes. As of 2021, the lifetime exclusion stands at $11.7 million per person, so most individuals don’t currently worry about exceeding this threshold. However, this limit is scheduled to revert to approximately $5 million per person in 2026, making advance planning important.
Generous Contribution Rules
The rules governing 529 plans allow a distinctive giving strategy. You can make a lump-sum contribution up to five times the annual $15,000 limit, meaning you could contribute $75,000 per recipient ($150,000 for married couples) without gift tax implications, provided you document the contribution on your federal gift tax return and refrain from additional gifts to that same recipient during the five-year period. After five years, you can make another qualifying lump-sum contribution.
Control and Flexibility
Many worry that funding a 529 means permanently relinquishing control of assets. In reality, these plans offer substantial control—particularly when titled in your name. You can withdraw funds at any time, though they’ll return to your taxable estate. Withdrawals face a 10% penalty on earnings if not used for qualified education expenses.
Adaptability for Changing Circumstances
If your designated beneficiary doesn’t need the full amount, you retain significant flexibility. You can redirect funds toward graduate school, scholarship amounts, or qualified education expenses like room, board, books, and supplies. You can also change the beneficiary to another family member multiple times without penalty.
If you want to learn how a 529 plan can serve double duty as both an education savings tool and an estate planning strategy, contact our office to schedule a consultation.
