Santa Barbara Estate Planning Attorney: How to Use a 529 Plan to Save for Education Expenses While Benefiting Your Estate

By Santa Barbara Will and Trust Attorney Julianna Malis

If you’ve heard of a 529 Plan, you probably think of it as a means of education funding for your children or your grandchildren. These plans are sponsored by state agencies or educational institutions, and they’re available to people of all income brackets. While a 529 Plan is a great tool for saving for college, you can also use it as part of your estate planning.

The Rules

First, let’s take a look at some of the basic rules of establishing and utilizing a 529 Plan. Any U.S. resident age 18 or older with a valid Social Security number or tax ID can invest in most state plans. The savings kept in a 529 can be used for education-related expenses, such as tuition and books at most accredited colleges or universities as well as public and private primary or secondary (K-12) schools. The beneficiary of a 529 can be anyone with a Social Security number or tax ID, including the owner or the person who opened the plan, who plans on furthering their education.

The Perks

What makes a 529 Plan such a useful estate planning tool are the high contribution limits and the tax benefits. Perhaps the greatest advantage of investing in a 529 Plan is the fact that you can gift up to $75,000 per recipient as long as you indicate that this as a five-year contribution and that you do not make any additional gifts to that same recipient during those five years. For married couples, this would allow for a $150,000 contribution per recipient. So, a husband and wife with three children could set aside $500,000 in a 529 Plan, and that money would reduce the amount of your taxable estate.

The other advantage of a 529 Plan to consider is the tax breaks that cover this particular type of savings plan, especially when compared with others. While mutual funds are subjected to annual income taxes and withdrawal taxes, 529 Plans are allowed to grow without being subjected to taxes, and withdrawals of up to $10,000 per year per beneficiary will not be taxed either. Additionally, some states offer additional breaks like tax credits for contributions made to the plan.

Staying in Control

Aside from the contribution and tax advantages that come with a 529 Plan, there’s also the level of control that you’ll have over your investments. The funds in the account can be taken back at any time, and they can also be transferred to another beneficiary. This is particularly helpful if you have a child or grandchild who chooses not to continue their education or who receives scholarships or other financial aid to cover their tuition and expenses. Because there’s no time limit on a 529 plan, the money can also be left in the account to fund additional expenses like graduate school or room and board.

The Bottom Line

Setting aside money for your children or even your grandchildren is often an essential part of estate planning. Rather than using the same old means to leave money to your heirs and hope that they use it for their education, putting money into a 529 Plan allows you to manage your investment as you see fit. As always, we advise you to sit down with a qualified Santa Barbara County estate planning attorney to weigh your options and choose the plan that is going to work best for you. If you need assistance doing just that, we invite you to contact our Santa Barbara trust and estate law firm at (805) 946-1550 to schedule a consultation.

Author Bio

Julianna Malis is the Founder and Managing Partner of Santa Barbara Estate Planning & Elder Law, a Santa Barbara estate planning law firm she founded in 2014. With more than 25 years of experience practicing law, she has dedicated her career to representing clients in a wide range of legal matters, including estate planning, elder law, Medicaid and Medicare planning, probate, and other estate planning areas.

Julianna received her Juris Doctor from the University of the Pacific — McGeorge School of Law and is a member of the California State Bar Association.

LinkedIn | State Bar Association | Avvo | Google