The Benefits of Using 529 Plans in Estate Planning

Tags: estate planning, 529 Tampa, 529 Plan Tampa, 529 Tampa Advisor

When we begin to plan the financing of our children’s future, we tend to think up to, and including, the college years. Particularly since each year becomes progressively more expensive.

529 Plans offer a robust selection of options, but often overlooked is the ability of these funds to be available after that Bachelor’s Degree is earned.

Besides our capacity as financial advisors to help plan how to fund projected expenses; it is important you know that more than the finite amount needed to pay the academic bill can be saved.

In other words, don’t be afraid of overfunding 529 accounts. They could serve as a legacy account for your family.

Future generations can let the money compound, making this fund a family asset to protect future generations. Additionally, because of the 529 Plan status, future generations will think hard about taking the money out of the 529 Plan.

The 529 Advantage

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The unique advantage with 529 plans is that the value of the 529 account is removed from your taxable estate, yet you retain full control over the account including the right to ask for the money back at any time. No other vehicle affords this combination of control and estate reduction.

There are four main benefits of using 529 Plans in Estate Planning:

1)      The assets in the 529 Plan are removed from your taxable estate,

2)      You retain control of the assets in the 529 Plan,

3)      You may pre-fund 5 years of gifts to a 529 Plan; and,

4)      The assets in a 529 Plan compound for years tax-free.

There is even more liberty granted to these savings vehicles. You can open multiple 529 Plans for a single child.

Additionally, if this tax-free vehicle is left to accrue, it can be a nice nest egg for family members, particularly those in retirement.

Having limited savings and sustaining a living on a fixed income doesn’t always provide the ready cash for emergencies or even vacations. To withdraw from a 529, there is a 10% penalty on the amount, and the amount withdrawn is reportable income, so therefore taxable.

However, in retirement, the likelihood of being in a lower tax bracket is higher for most people, so the penalty may well be worth paying.

529 Limitations

It is possible to hit the proverbial ceiling with these plans. For example, states do limit contributions to 529 plans once they reach a pre-determined balance. Florida’s 529 Plan accepts contributions until the account balance reaches $418,000.

Overall, a 529 Plan delivers a viable financial alternative -- beyond the college years. This additional aspect to traditional college savings is worth the time and the money.

If you would like help choosing and investing in a 529 or College PrePaid Plan, please contact me at or (813) 282-7870. While we believe a college education is important, we also understand it is expensive, and the process is daunting.

We do not charge fees for helping with 529 Plan accounts. We get two benefits from helping you: 1) as parents ourselves, we feel good about setting you and your child on the correct path to pay for college and 2) it enables us the opportunity to begin a discussion about your other investment needs. 

If you have a question beyond the scope of this article, feel free to visit our “Ask Us a Question” page or leave a comment below so we may assist you with your specific situation.

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