529 plans can help with estate planning.
Saving for college is no small task.
In fact, it can be quite daunting.
One helpful tool for college savings is a 529 plan.
According to a recent The Cary Citizen article titled “529s and Estate Planning: What’s the Connection?,” these plans can also help with estate planning.
State governments sponsor them.
One or more investment companies administer them.
What kind of investment options do they offer?
The portfolios often include mutual funds.
They are either conservative age-based allocations or predetermined allocations.
If age-based, they will adjust as you get closer to the individual attending college.
If predetermined, the allocations will remain the same.
What are the benefits?
The withdrawals from 529 plans are tax-free if used for qualified college expenses.
What if they are not qualified?
They are subject to income taxes and a 10 percent federal tax penalty.
What if you are contributing rather than the actual individual going to college?
You are eligible to contribute to a plan no matter your income or age.
You could decrease your taxable estate through making contributions.
You can make up to $15,000 annually to a beneficiary.
Are you married?
If yes, then you can contribute up to $30,000 for a beneficiary or $30,000 if you are contributing jointly with a spouse.
These can be made without a federal gift tax applying.
What if you need to decrease your estate even more quickly?
You can make up to five years’ worth of gifts in a single year.
This comes out to $75,000 per beneficiary or $150,000 if married filing jointly.
You cannot make any gifts to a beneficiary you have maxed out for the next five years.
What if the beneficiary chooses to not attend college?
You can name a different beneficiary.
If you are interested in benefiting your estate plan, while providing for the education of a loved one, you can do both.
Whatever you do, work with an experienced estate planning attorney to help you determine how a college savings plan could work for your unique circumstances.
Reference: Cary (NC) Citizen (October 31, 2018) “529s and Estate Planning: What’s the Connection?”