Houser Firm

529 education plans and estate planning: What to know

On Behalf of | Oct 10, 2023 | Estate Planning

If you want to fund your child’s (or grandchild’s) education and reduce the size of your taxable estate for the future, a 529 college savings plan could offer you a lot of advantages.

Contributions to a 529 plan are typically considered a gift, meaning they are no longer part of your taxable estate. This can help reduce the overall value of that estate for federal tax purposes and help you preserve more of your assets for future generations.

How much can you contribute to a 529 plan?

Under current federal tax law, you can contribute up to the annual gift tax exclusion amount without incurring gift tax consequences. As of 2023, this amount was $17,000 per donor per beneficiary, meaning a married couple could contribute up to $37,000 to each 529 account they have without having to pay gift taxes. (However, you need to be aware that these limits can change over time, so it’s essential to check the new limits each year.)

You can also take advantage of a special provision allowing you to make a lump-sum contribution of up to $85,000 ($170,000 for couples). This helps you maximize your contributions to the 529 plan if you have a beneficiary who is fast approaching college age or you want to rapidly devalue your estate.

There’s also no limit to how many 529 plans you can have. That means that you can set up one for each of your children and grandchildren. You can also contribute to 529 plans that you did not set up, with the same results.

One of the advantages of 529 plans is that you retain control over the ones you create during your lifetime. That means that you can, if necessary, change the beneficiary designations or even withdraw the money (subject to penalties and taxes). That offers superior flexibility to an irrevocable trust that many people prefer.

Estate planning is as much about wealth management and asset preservation as anything else. Learning more about your options can help you craft the estate plan that’s right for your needs.