Building a Legacy of Education
Written by Andrew Roth, Operations Manager
I was recently cruising one of my favorite industry blogs—written by a team of self-described finance “nerds” - about the use of 529 college saving plans as legacy vehicles and I thought some of the ideas were worth sharing.
While many of you are familiar with 529 college saving plans, these ideas stretch their capabilities in some unique ways. They explore ways to transfer wealth, earmarked for education, among family members and across multiple generations.
529 plans are unique in a few ways. Firstly, they provide tax-free growth for monies used for education (primarily college, and added recently, certain K-12 education expenses) but don’t have annual contribution limits like other tax-favored accounts. Instead, 529 plans have account caps at which point no future contributions can be made, but tax deferred growth can continue. This creates some attractive prospects for “overfunding” a 529 plan and then allowing it to grow indefinitely.
Additionally, 529s are built around a structure with an account “owner” and a specified “beneficiary”. New beneficiaries can be easily designated, earmarking some of the funds for another family member. While there are some possible complications related to gift taxes that deserve consideration, this allows multiple beneficiaries to benefit from this pool of education funds, even across multiple generations.
Finally, there is little precedent of tax consequences for transferring ownership of a 529 plan (unlike some other investment account types). This means that an account can generally be transferred, as an example, from the ownership of a grandparent to a parent when the transfer of those responsibilities and authority makes sense.
Based on these rules, one can imagine a growing pool of tax-free money funding the education of an ever-expanding family tree.
This should be caveated with the note that these benefits only stay in effect if Congress (and the IRS) allows, and that this approach can limit the utility of funds by penalizing their use for other purposes. Once these and other facts are considered, it appears that 529 plans may serve as a unique tool for people striving to maximize education as part of their legacy, even after they are gone.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
