Print Email
 

529 plans are particularly popular with grandparents who wish to invest in a grandchild’s future because they offer significant estate planning benefits in combination with these powerful savings features. Funding a 529 account is considered a completed gift to the beneficiary for estate tax purposes — all contributions and earnings grow outside your taxable estate. Plus, unlike other gifting programs, a 529 plan enables you to retain control over the account and its assets.

Put time on your side with accelerated gifting
In general, you can contribute up to $15,000 ($30,000 for married couples) per beneficiary per year without triggering federal gift taxes. However, special 529 rules allow you to use five years of annual exclusions at once for a tax-free gift of up to $75,000 (joint taxpayers may fund $150,000).* Your $1 million dollar gift tax exemption may also be available for funding your 529 account. Talk to your tax advisor for additional details surrounding this exemption.

Multiple gifts, multiple beneficiaries
You may own and fund as many 529 accounts for as many beneficiaries as you like, subject to funding limits. Other individuals may also contribute to your 529 accounts and remove assets from their own estates.


College Saving Profile
Benefits of Early Investing

Jane and William Brown want to help their five grandchildren pay for their upcoming college educations. They choose a 529 College Savings Plan because it:

  • Provides tax-advantaged growth up to certain account limits and tax-advantaged withdrawals without age restrictions or required distributions.
  • Allows them to make five years of contributions at one time without incurring federal gift tax—important for those children approaching college age.
  • Permits the parents to contribute as well.
  • Allows them to retain complete control over the assets for the life of each account.
  • Removes significant assets from their federal taxable estate. Jane and William Brown below, having contributed $840,000 to several 529 accounts over 14 years, and combined with the power of compounding over this timeframe they would have $1,401,751 outside their taxable estate, while always retaining control.


This illustration is hypothetical and not representative
of the performance of any particular investment.
There are risks associated with investing, including the possible loss of principal.

Jane and William Brown, Grandparents

Chart assumes a 6.5% annual return compounded annually.

Family Tree Chart


 

Compound interest arises when interest is added to the principal, so the interest that has been added also itself earns interest. By contributing sooner, rather than later, compounding interest allows you to invest less overall than if you waited. Thus, your money has more time for potential growth and to ride out any market downturns.

The examples above display how compound interest could benefit clients that choose to contribute a larger amount by taking advantage of the 5-year accelerated gift option associated with a 529 College Savings Plans. Single investors are able to contribute up to $75k at one time and joint investors up to $150k without incurring federal gift tax, thus allowing a larger sum of money to potentially working for the client. The maximum balance limit per beneficiary in the CollegeAccess 529 Plan is $350,000.

*Taking into consideration contributions and the effect of compounding. Assets placed into a 529 College Savings Plan are considered removed from the donor’s estate for tax purposes. An exception to this rule is if the Account Owner passes away and is listed as the Designated Beneficiary on the account. In this instance, the value of the account will be included in the account owners’ taxable estate. If the Donor dies before the start of the fifth year, a portion of the contribution must be added back to the Donor's estate for tax purposes. The information above is general in nature and is for illustrative purposes. It does not provide tax or estate planning advice for your personal circumstances. Please consult your tax advisor if you have questions pertaining to your personal estate plan.



Ready to Invest?

Ready to Invest?