529 Plans And Estate Planning: What They Are, Why They Are Useful, And How To Set One Up
The cost of college continues to rise. A parent, grandparent, aunt/uncle, or other person who cares about a child’s future, you may want to provide financial support to their education. A 529 plan is one of the most cost effective estate planning tools to support a child’s future education. In this article, our Boston estate planning attorney provides an overview of 529 plans, including explaining what they are, why they are useful, and how you set up one.
What is a 529 Plan?
As simply described by Investopedia, a 529 plan is a “tax-advantaged account that can be used to pay educational expenses from kindergarten through graduate school.” The contributions made to a 529 plan are tax-deferred and withdrawals are tax free as long as those withdrawals are used to cover qualified educational expenses. In other words, a 529 plan allows you to get the absolute most out of your dollar when contributing to a child’s future educational expenses.
Why a 529 Plan is a Valuable Tool
As you construct your estate plan, a 529 plan can be an especially effective tool if you want to leave money/assets to support a minor. It is a great way to leave financial resources to a child or grandchild. Here are some key resources why 529 plans can be so valuable:
- Tax Advantages: As noted previously, contributions to a 529 plan grow tax-deferred and distributions for qualified education expenses are tax-free at the federal level. These are big tax benefits. It allows you to get the most out of your dollar.
- Gift Tax Benefits: Contributions to a 529 plan are considered gifts for tax purposes. In 2023, individuals can make a one-time, five-year gift tax averaging contribution of up to $80,000 per beneficiary without incurring federal gift tax liability.
- Control Over Assets: The donor retains control over the assets in the 529 plan, including the right to change beneficiaries and to withdraw funds—subject to tax and penalty on earnings if not used for education. It allows you to ensure the funds you are leaving are used for a specific purpose, such as education.
How to Set Up a 529 Plan for a Child
To set up a 529 plan, you will need to make an account on behalf of a selected beneficiary. First, choose the right 529 plan by comparing state-sponsored plans to determine which offers the best options for your needs. Next, complete the application—which typically requires the beneficiary’s and account holder’s Social Security numbers and their basic information. Finally, after the account is opened, decide on an investment strategy suitable for the timeline. An estate planning attorney can help you put the right structure in place.
Contact Our Boston, MA Estate Planning Attorney Today
At Fisher Law LLC, our Massachusetts estate planning lawyers are committed to helping families find solutions that work. If you have any questions about setting up a 529 plan for a child, grandchild, or other loved one as part of your estate plan, we can help and work with your financial advisor Contact our estate planning firm for a confidential consultation. We provide estate planning services throughout the Greater Boston area.
