By: Mary G. Morris, Chief Executive Officer, Virginia529 College Savings Plan
December 19, 2016
Many people know that saving in a 529 account can help your loved one with higher education costs… but did you know it could also be an exceptional estate-planning tool?
That’s because the total value of the 529 accounts you own, with another person as beneficiary, is removed from your taxable estate (as 529 contributions are considered completed gifts), yet you retain full control over the assets in the accounts. This flexibility and control is unmatched by other estate-planning vehicles.
Contributions to 529 accounts qualify for the $14,000-per-year federal gift tax exclusion (or $28,000 for married couples filing jointly), so you are able to make large annual contributions without incurring a federal gift tax.
You also may elect to spread a large lump-sum contribution over five years for gift-tax purposes. This permits you to frontload up to $70,000 per beneficiary (or $140,000 for a married couple filing jointly) into a 529 account without gift tax implications – assuming you make no other monetary gifts to the account beneficiary during the five-year period. (Note that if the donor passes away during the five-year gift tax averaging period, a pro-rata portion of the gift will be included in the donor’s taxable estate.)
Starting or contributing to a 529 account is a great investment in your loved one’s future – so, in this season of gift giving, consider adding a 529 account to your estate plan today. You also may qualify for a state income tax deduction or credit for your contribution, depending on the 529 plan you choose. To get started, refer to CSPN’s 529 plan comparison tool.
Estate and gift tax issues are dependent on individualized situations and are complicated. Seek the advice of a professional concerning financial, tax or legal implications of opening and contributing to a 529 account.
About the author:
Mary G. Morris is the chief executive officer of Virginia529 College Savings Plan. Mary is a lawyer and spent many years in private practice specializing in tax, public finance and securities matters. She is active in both national 529 organizations, serving as Chairman of the Board of the College Savings Foundation, Chairman of the Federal Initiatives Committee of the College Savings Plans Network and a member of the National Association of State Treasurers Legislative Committee.