Many people planning their estates use gift giving as a way to reduce estate taxation before they pass away. However, many people overlook the tax and estate planning benefits of 529 college savings plans.
What Is A 529 College Savings Plan?
A 529 college savings plan is an investment vehicle that allows you to set aside money for another person’s educational expenses. For your purposes, this will likely be your grandchildren. The main benefit of 529 plans is that they are tax-free while allowing you to retain control of the account.
How Much Can I Contribute?
You can contribute as much as you like as long as it doesn’t exceed $14,000 annually for that beneficiary. Any gifts that exceed $14,000 annually will be taxed. However, if you opt to contribute a large lump sum, you can request that the IRS spread the gift over a number of years (up to five) for gift tax purposes. This means that if you gave $28,000, for the purposes of taxation, you could spread the gift over the span of two years.
What If My Grandchild Doesn’t Go To College?
Even if your grandchild decides against college, you can transfer the 529 plan to another beneficiary or you can withdraw the funds for your own needs. Just remember, if you withdraw the money for any reason other than educational expenses, that money will be taxed and you’ll face a penalty.
When Should I Start?
You can begin contributing to a 529 plan at any time. Even if the beneficiary is very young and you pass away before they reach 18, they can still receive the money once they come of age. If you want to use 529 college savings plans as part of your estate planning, speak with an attorney about how you can do it effectively.
If you have questions about your Estate Plan, allocation of funds for educational use, or the tax benefits that are available to you, I’m here to help. I’ve spent my career, advocating and planning for the residents of Louisiana. It would be an honor to assist you as you plan for the next chapter of your legacy.