It’s top of mind for any parent with a child in high school: finding a way to pay for college. But you can actually be much more proactive in planning ahead for your child’s college education using tools like a 529 plan. In addition to other strategies with your estate plan, you can help pass down funds your children might need for their education.
With the average annual tuition and fees at many ranked colleges sitting at almost $10,000 for in state public schools, $21,000 for out of state public colleges and over $35,000 for private colleges, it’s imperative to think about how you plan for these costs for your children.
While many loved ones, including parents, might save for college by using 529 plans, you might not have thought of a 529 plan as an estate planning tool. This is an investment account that carries tax advantages, meaning that money contributed to the plan can grow tax free and can also be withdrawn tax free if it is used for certain education expenses like books, computers, fees, tuition and certain boarding costs.
The limits for what can be set aside for each beneficiary vary from one state to another but you are not obligated to use your own state’s plan and accounts can be set up for same beneficiaries in more than one state. This can also be used to transfer wealth and reduce your taxable estate because these contributions are counted as completed gifts from the donor to the beneficiary, even when the donor remains the account owner.
The account is also not usually included in the estate of the person who created it and an individual might be able to put aside as much as $15,000 per year per beneficiary without triggering federal gift taxes or leaning into their lifetime gift tax exemption. For more information about using this as part of your overall estate planning picture, schedule a consultation with an estate planning lawyer in Pasadena.
