Need to get Money out of your Estate? Try a 529 Plan

Need to get Money out of your Estate? Try a 529 Plan

January 05, 2022

You’re probably familiar with your standard 529 Plan. The cost of college looms over many parents as their family’s grow, and a 529 might be one of the first choices they look at when it comes to preparing for their children’s future education. 529 plans offer unique features that make them an attractive tool when saving for education expenses.

These plans allow you to contribute up to 5 years of the annual exempt gift limit at once. In 2022 the yearly gift tax exemption is $16,000 so that means that you are allowed to contribute up to $80,000 into a 529 plan per spouse, per beneficiary.

But what if your kids have already finished school? Or what if grandma and grandpa have generously offered to pay for college? Maybe one of your children is expected to get a full ride and you don’t see the point of saving in a 529 plan.

529 plans are typically only talked about in the context of planning for higher education, but they have another unique use that is much less popular:

Getting money out of your estate

People with large estates often face tremendous taxes and look for ways to pass on  the generational wealth and meet their philanthropic goals. Once a family has exceeded the estate tax exemption, options can be limited and a large tax bill may loom ahead.

That’s where the 529 comes into play. As mentioned above, everyone can contribute up to $80,000 at once in a 529 plan per beneficiary. For a married couple, that’s $160,000 per beneficiary. While these accounts are funded with after-tax dollars, the investments grow tax free and are withdrawn tax free as long as the money is used for qualified education expenses. And the best part is, the beneficiary can be changed at any time.

Whether it’s 10 grandchildren or a  slew of nieces and nephews, this allows you to move money across generations tax free while also ridding your estate of potential tax liability and possibly even dipping below the federal estate tax exclusion, $12,060,000 in 2022.

If you’re nearing the estate tax exclusion limit, or have already surpassed it, this may be a solution to leave a legacy for your family, create an education fund for generations to come, and reduce your liability to Uncle Sam.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.