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Harnessing the Power of 529s in Estate Planning

It’s time to take a look beneath the surface of 529s and discuss their potential benefits when it comes to your estate.

As you diligently plan for your financial future, you’ve maximized contributions to your employer retirement plans and individual retirement accounts (IRAs). You may find yourself asking, “What can I do next?” Enter the 529 plan, a powerful tool that not only supports education funding but also offers unique benefits for estate planning purposes. Let’s delve into how strategically utilizing a 529 plan can enhance your long-term financial strategy and leave a lasting impact on future generations.

Leveraging 529s:

  • While 529s are typically associated with education savings and expenses, they offer an additional benefit when it comes to estate planning.
    • Funds you gift into a 529 are removed from your estate and will continue to grow tax-free to be used for future qualified educational expenses.
    • You can contribute as much as you’d like each year as long as you don’t surpass the maximum aggregate contribution limit, which differs from state to state (Ranging from $235,000 to $550,000).
    • Keep in mind, the IRS views 529 contributions as gifts, which may be subject to taxation if they exceeds the annual gifting exclusion ($18,000 for 2024) and you have used up all of your lifetime gift and estate tax exemption ($13,610,000 for 2024).

Unique Feature:

“Superfunding” or “5-year gift-tax averaging” allows you to front-load large contributions without paying gift taxes while simultaneously protecting your lifetime gift and estate tax exemption.

  • With superfunding, you can contribute five times the annual gift exclusion in one lump sum as if it were spread over five years ($90,000 single or $180,000 MFJ for 2024).
  • This five-year election must be reported on IRS Form 709 for each of the five years.
  • This option can only be done once every five years per beneficiary.
Example: A couple of grandparents are looking for ways to reduce their taxable estate. They have ten grandchildren. They decide to superfund 529s for each grandchild using gift-splitting ($36,000 x 5 x 10). This allows them to remove $1.8 million from their estate while also providing for their grandchildren!

In conclusion, by adding 529 plans to your estate planning, you secure both education funding and long-term legacy preservation for future generations. Strategically allocating resources ensures your financial legacy endures for years to come.

About Strategic

Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $2 billion.