Insights Articles 529 Plans: Advanced Strategies for Education and Wealth Transfer


529 Plans: Advanced Strategies for Education and Wealth Transfer

When someone thinks about socking away money in a college fund for children or grandchildren, the first thing that comes to mind is a 529 plan – a savings plan for qualified educational expenses, which may include not only tuition, but also room and board, books, and other school supplies.  But did you know that a 529 can also be an attractive consideration for transferring generational wealth?

The Basics:

  • Money invested in a 529 plan grows tax free and the growth is exempt from federal taxes upon withdrawal, as long as the funds are used for qualified educational expenses.
  • You can open up a 529 plan before you become a parent or grandparent, which provides a head start on building generational wealth that you can pass down to future family members.
  • You can open a 529 plan in your name and change the beneficiary later on; and you may open multiple 529 plans to save for the education of multiple children or grandchildren. 
  • Most plans have lifetime contribution limits of about $350,000 and up (annual and all-time contribution limits vary by state).
  • Expanded use of funds:  Money in a 529 plan can be used for education related expenses at any accredited college, community college or graduate school; for certified apprenticeship programs; for student loan repayment (student loan repayment has a $10,000 lifetime limit per 529 plan beneficiary and $10,000 per each of the beneficiary’s siblings); and for K-12 tuition expenses up to $10,000 per year.

The Advanced:

  • Contributions are considered completed gifts.  You can annually give $18,000 (for 2024) per donor per beneficiary, or $36,000 per couple per beneficiary, without being subject to the gift tax.
  • “Super funding” – Contributions can be front-loaded, up to $85,000 (up to $170,000 for married couples)– or five years’ worth of contributions at once.  If you decide to do this, you can’t fund the account for the next four years.
  • You can name a trust as the account owner, which will give you control even after you’re gone.  Trustees can make decisions for the account that are advantageous to the beneficiaries and ensure your wishes for the account are carried out.
  • Contributions to a 529 plan reduce the taxable value of your estate and because contributions are treated as completed gifts, they are immediately removed from the donor’s estate and exempt from the current federal estate tax limit ($12.92 million per person or $25.84 million per couple).
  • Another new benefit starting 2024 (per Secure Act 2.0), it is now permissible to rollover up to a lifetime limit of $35,000 tax free from a 529 plan to a Roth IRA.  The money must be moved to a Roth IRA for the beneficiary of the 529 as opposed to the owner of the 529 account; and the account must have been in existence for at least 15 years. Only funds in the plan for at least 5 years are eligible for rollover. (Please note that annual Roth contribution limits will apply based on the rules included in the legislation and the IRS could interpret differently upon implementation.) 

Whether you want to reap the ‘basic’ benefits of a 529 savings account, or want to discuss the ‘advanced’ benefits – the best approach is reaching out to your Confluence Wealth Manager or starting the conversation altogether. We look forward to helping you and your family with education planning in 2024.

Zac Saunders
About the Author

Known for his professionalism and calming demeanor, Zac is focused on helping his clients reach their financial goals through comprehensive financial planning and unbiased guidance.  Zac and his team support and care for…

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