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529 Plans: Estate Planning Secret Weapon

529 plans estate planning
Thanks to changes in the 2017 tax law, 529 college-savings plans are being used as estate planning tools and to pay for more education-related expenses than ever before, according to InvestmentNews.

A person who contributes to a 529 college savings plan can front load five years’ worth of contributions ($75,000 total) into one year, without any federal gift taxes being imposed.  In that case, say that two grandparents want to help finance college for their grandchild. They are able to deposit $150,000 into his or her 529 plan. In addition, this helps them reduce the potential impact of estate taxesBarron’s recent article, “529 Plans Have Morphed Into Estate Planning Tools,” says the 2017 tax law also permits the withdrawal of up to $10,000 each year to pay for K-12 education at public, private, or parochial schools. This makes 529 plans an estate planning tool of some potency.

Funds in 529 plans (up to the annual contribution limit of $15,000 ) can also be rolled over into an Achieving a Better Life Experience Account. That type of account promotes savings for disability-related expenses.

The money from a 529 plan for one sibling can be rolled into an ABLE account for another sibling.

Research shows that roughly $259 million has been saved thus far in these accounts, which were created five years ago.

However, this benefit will end in 2026, unless Congress extends it.

In addition to these tax law changes, you can ask your estate planning attorney about techniques for using a 529 account in that area.

A 529 college savings plan can be used to purchase computers and other technology for a student.

These savings plans can also be used by adult account holders to pay for their own education or retraining. This is happening right now in only about 2% of 529 plans.

Experts say that these types of uses for adults are expected to increase, as technological advances change the workplace, making 539 plans an estate planning tool that will grown in usefulness.

Reference: Barron’s (September 9, 2019) “529 Plans Have Morphed Into Estate Planning Tools”


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