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Tuesday, May 26, 2020

Why You Should Consider Incorporating 529 Plans Into Your Estate Plan

When properly crafted, an estate plan has so much more to offer than simply a way to distribute assets to your family and loved ones. There is an extensive range of estate planning tools that are often overlooked, but can provide many benefits to those who choose to access them. For instance, a 529 Savings Plan may not be something you would consider as an estate planning tool, but it certainly can be. A 529 plan is named for the Internal Revenue Code section that authorizes them. It is a tax-advantaged investment vehicle that allows for tax-sheltered growth. Withdrawals from the account or tax-free when used for qualifying educational expenses. Establishing a 529 plan can help with more than just college planning. It can help with estate planning as well.

Why You Should Consider Incorporating 529 Plans Into Your Estate Plan

College is expensive and seems to be getting more expensive every day. That is why many people choose to establish 529 plans for their children and grandchildren. Through investing in a 529 plan, your investment can enjoy tax-free growth. Withdrawals from the plan are also exempt from federal and, sometimes, state income taxes if they are used for qualifying education expenses. Qualifying expenses include things like:

  • Tuition
  • Room and board
  • Books
  • Supplies and equipment
  • Expenses required for enrollment

These expenses may be paid to institutes of higher education as well as elementary and secondary schools. Just a single beneficiary of a 529 plan can have upwards of $400,00 in their account.

As you can see, establishing a 529 plan can be a great way to provide for covering costs associated with school from elementary up through college. In addition, for providing coverage for education costs, those establishing a 529 plan for their children or grandchildren can also reap substantial benefits for their estate plan.

A 529 plan allows a person to significantly reduce estate tax liability as well as exercising a substantial amount of control over the assets that have been removed from the taxable estate. A married couple is able to contribute, as of 2019, up to $30,000 per year to a 529 plan without incurring gift tax liability. The option is also available to use five years of gift tax exemptions up all at once for a total contribution of $150,000. However, you will not be able to use your gift tax exemption again for the next five years. Because of the size of tax-free contributions, you are able to make to a 529 plan, it is an efficient and effective way of taking assets out of your taxable estate and transferring them for the benefit of the intended plan beneficiary.

Contributing to a 529 plan is an effective mechanism for wealth transfer that also allows you to retain control over the assets you have gifted. While you contribute to the 529 plan, you remain empowered to change plan beneficiaries. You are also able to take the money back at any time, but will incur federal and state income tax on your withdrawals as well as a 10% tax penalty.

Estate Planning Attorney

At Monk Law, we are here to create a comprehensive estate plan crafted to meet the unique needs and goals of you and your family. This means including effective estate planning tools such as 529 plans and so much more. Contact Monk Law today.


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| Phone: 803-594-4453
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| Phone: 704-369-9977

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