Contributions to a 529 college savings accounts might be a popular avenue for grandparents to use to provide support and inspiration to their grandchildren. These college savings account can be used as a way to reduce potential estate taxes, transfer wealth, and support a loved one’s educational goals.
Simply having any money established in a 529 savings plan can increase each child’s likelihood of attending and graduating college. For example, studies have shown that even for those students who have only $500 in a 529 plan, they are 3 times as likely to go to college and 4 times as likely to graduate.
Contributions made to a 529 account for a beneficiary are classified as gifts, although the account owner will retain complete control over the account during their lifetime. Each year, a donor can gift up to $15,000 for a federal estate and gift tax impacts so long as no other gifts are given to that recipient during the year.
Furthermore, federal tax laws give even more flexibility to 529 donations. These accounts can be front-loaded with up to 5 years of annual gifting, which means a maximum of $75,000 per person.
The education plan provides tax benefits since contributions in some estates could be tax-deductible on tax returns and the earnings inside these valuable accounts can grow free of federal or state taxes.
In addition to a 529 savings plan, there are many ways that you can accomplish your estate planning goals by creating a comprehensive strategy for you individually as well as your family. Leveraging your annual gift tax exclusion is just one way to pass on wealth.
To learn how to incorporate a 529 savings plan into your loved one’s future, schedule a consultation with an estate planning lawyer in Pasadena now.