Estate Planning With 529 Plans

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  2. Estate Planning With 529 Plans
Estate Planning With 529 Plans

529 plans can be an excellent college savings tool. Investments in your 529 plan can grow tax-free, and withdrawals may also be exempt from federal and state income taxes, provided they are used for qualified education expenses. In addition, 529 plans can be a valuable estate planning tool.

529 Plan Basics

You can open a 529 account for each child to save for their education expenses. You can contribute to the account, but so can other family members, friends, or anyone else.

The money grows tax-free, and the withdrawals won’t be taxed if they are used for qualified education expenses. This can include tuition, room and board, books, supplies, equipment, and certain other expenses that are required for enrollment. These expenses can be paid to a higher education institution, but also to an elementary or secondary school.

A single beneficiary can have up to $400,000 in their 529 account, and the funds can be used for college expenses at any eligible higher education institution.

529s in Estate Planning

A married couple can contribute up to $30,000 per year (as of 2019) without paying gift tax. You can also use five years of gift tax exemptions at once for a total contribution of $150,000, but you won’t be able to use your gift tax exemption for that person for the next five years.

This makes a 529 plan an effective wealth-transfer tool. It also gives you some control over the assets even after you’ve gifted them to the plan.

For example, if you gift your grandchild $15,000, you lose all of your right to the money. You can’t control how it’s used in any way.

With a 529 plan, the account owner stays in control of how the funds are invested. You can also change beneficiaries, which may be a necessity if the original beneficiary chooses not to attend college.

While you keep control over the funds, they are no longer a part of your taxable estate. You can even take the money back, but you’ll have to pay federal and state income taxes on your withdrawals, in addition to a 10% tax penalty.

King Law Offices is a full-service law firm with an outstanding team of professionals who work diligently, creatively, and compassionately on behalf of our clients each day.  We serve the Upstate of South Carolina and Western North Carolina.  Call 888-748-KING (5464) today to set up a consultation with one of our dedicated estate planning attorneys.

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