When planning for the future, it’s essential to consider all the tools available to secure your family’s financial well-being. A 529 college savings plan is one such tool that not only supports educational goals but also offers significant benefits in estate planning in Minneapolis. This article explains how to integrate a 529 plan into your overall estate planning strategy.
What is a 529 College Savings Plan?
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs explains Investopedia. It’s one of the most effective ways to save for a child or grandchild’s college education. Contributions grow tax-deferred, and withdrawals are tax-free when used for qualified education expenses, including tuition, fees, books, and even K-12 expenses up to $10,000 per year. But beyond its educational benefits, a 529 plan offers compelling advantages when integrated into your estate plan.
In his video, Have a 529 plan? Check this immediately…, estate planning director Phil Ruce explains the importance of checking the owner and successor owner listed on a 529 plan.
Estate and Financial Planning Benefits of a 529 Plan
One of the most powerful aspects of a 529 plan is its ability to help reduce the taxable value of your estate. Contributions to a 529 plan are considered completed gifts to the beneficiary, which means they are removed from your taxable estate. This allows you to take advantage of gift tax exclusions, effectively lowering your estate’s tax liability.
The MN Saves Minnesota 529 College Savings Plan offers several key benefits that make it an excellent choice for families looking to invest in their children’s education. One of the financial benefits is its unique tax advantages, including 100% tax-deferred growth and the ability for Minnesota taxpayers to reduce their state taxable income by up to $3,000 per year if married filing jointly.
Superfunding Opportunities Help Avoid Estate and Gift Taxes
For those with substantial assets, the IRS allows for an acceleration of the gifting process, known as “superfunding.” You can contribute up to $18,000 per beneficiary ($36,000 for a married couple)—without triggering gift taxes. This is a powerful strategy for reducing the size of your taxable estate while providing for your loved ones’ education. Read more in our article, How Do You Limit Your Estate Tax Liability in Minnesota?
529 Plans: Key Considerations for Estate Planning
While 529 plans are an excellent tool for both education and estate planning, there are a few critical considerations to ensure your plan works smoothly:
Successor Ownership
When you set up a 529 plan, you are the owner, and your child or grandchild is the beneficiary. However, if something happens to you, the account could end up in probate unless you’ve named a successor owner. This is a crucial step to ensure that the account continues to serve its intended purpose without unnecessary legal complications. As advised by Philip Ruce, a Minneapolis Estate Planning Attorney, always check your 529 plan documentation and designate a successor owner to avoid probate issues.
Changes in Federal Tax Laws
Recent changes in federal tax laws have made 529 plans even more attractive. The Tax Cuts and Jobs Act of 2017 and subsequent legislation expanded the use of 529 funds to cover K-12 expenses and a portion of student loan debt. Additionally, you can now roll over up to $35,000 from a 529 plan into a Roth IRA, offering even more flexibility in how these funds are used.
Incorporating 529 Plans with Other Estate Planning Tools
A well-rounded estate plan may include a variety of financial tools, such as wills, trusts, and retirement accounts. When working with a Minneapolis estate planning attorney, discuss how a 529 plan can complement these other tools. For example, while a trust can provide long-term financial support for your heirs, a 529 plan can specifically address educational needs, ensuring that funds are available when your beneficiaries need them most. In addition, if you’re child is nearing college-age and is ready to use their 529 college savings, ensure that they have the necessary legal documents to keep them safe while away at college.
Take Action with a Minneapolis Estate Planning Attorney
As tax laws evolve and educational costs rise, the benefits of a 529 plan within your estate planning strategy become increasingly clear. Whether you’re looking to maximize your estate’s tax efficiency or simply ensure your children or grandchildren have the resources they need for their education, a 529 plan is a tool worth considering.
To explore how a 529 plan fits into your overall estate plan, and to ensure all aspects are correctly aligned, book a call to speak with a Minneapolis estate planning attorney at Stone Arch Law Office. They can help you navigate the complexities and make informed decisions that benefit both you and your loved ones.
