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AL Estate Planning & Elder Law Blog

Tuesday, February 16, 2021

Using Your 529 Savings Plan as an Estate Planning Tool

Parents typically use a 529 savings plan to fund their child’s college education. Did you know, however, that there may be more ways to use a 529 savings plan? In fact, there can be many other ways to make the most of a 529 savings plan that can actually increase the amount of money available to spend on education. One of these is funding a 529 savings plan with the intent of making it part of your estate plan rather than using it in the near-term future. By making this choice, you can give the money you put into the plan a longer period of time to grow and multiply tax-free.

As noted above, if you invest money into a 529 savings plan and leave it there for the time being rather than using it within a 10- to 20-year period as most parents do, your money can work more for you due to the power of compound interest. If the funds you invest now are put into appropriate fund choices and then left untouched for 30, 40, or even 50 years, a lot more money could be available at the end of that timeframe. It may not matter if you leave it alone until that time because 529 savings plans do not have to be used for any particular named beneficiary and they can be passed to your children, or even directly to your grandchildren, on a tax-free basis.

Your children may use the funds for secondary, collegiate, or graduate education for your grandchildren. Your grandchildren may use what they need and save the rest for their own children. In this way, using a 529 savings plan as part of your estate plan can allow you to have an impact for many generations to come. If your grandchildren and great-grandchildren do not have to worry about funding their education by taking out student loans, they might have an easier time saving for a down payment on a home when the time comes because they may not be paying off loans for decades. By helping to ensure that your heirs can use the money for educational expenses far into the future, you may be freeing up their own earnings for other endeavors.

It can also be important to note that whatever you put into a 529 savings plan to benefit your children or your children’s children will be removed from your taxable estate. If you have a sizable estate and run the risk of incurring an estate tax at the state or federal level, putting money into a 529 savings plan can be a valuable strategy to avoid or minimize such taxation.

For more information on estate planning tools that can protect a future you want for your loved ones, please reach out to our office to schedule an appointment.

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