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Legacy Planning with 529 Plans
For the average high school student dreaming of a career with significant income potential and future wealth, attending college is often key to making these dreams a reality. Despite the promising future that college and professional degrees can unlock, the steep (and rising) cost of college admission can be too high for some families to bear. Fortunately, 529 plans can ease this financial burden by offering a way for people to save for their family members’ education expenses in a tax-efficient manner. With careful planning, this tax-advantaged savings vehicle can even be used to cover education expenses for generations to come.
Show Notes:
Important Disclosures: https://www.bosinvest.com/disclosures.
The following are important footnotes from this episode:
1 U.S. Bureau of Labor Statistics, “Learn more, earn more: Education leads to higher wages, lower unemployment,” May 2020, https://www.bls.gov/careeroutlook/2020/data-on-display/education-pays.htm
2 Please note that the state of California has not adopted this federal change under the TCJA. Using 529 plan funds for this purpose will result in California income tax and a 2.5% penalty on the earnings portion of the withdrawal.
3 It’s important to consult your CPA to understand all tax implications and potential penalties related to the use of 529 plan funds, especially as they relate to recently passed laws.
4 Kathryn Flynn, “How to Change the Beneficiary on Your 529 Plan,” Savingforcollege.com, April 10, 2019, https://www.savingforcollege.com/article/how-to-change-the-beneficiary-on-your-529-plan
5 Changing the owner, versus the beneficiary, is unlikely to result in any income and/or transfer (gift/GST) tax since the IRS has not provided direct guidance to date on such a change. It’s important to consult your estate planning attorney and CPA to understand any and all gift tax and GST implications that come with certain beneficiary changes.
6 Kathryn Flynn, “Maximum 529 Plan Contribution Limits by State, Savingsforcollege.com, December 10, 2019. https://www.savingforcollege.com/article/maximum-529-plan-contribution-limits-by-state
7 Similar to the GST, you can give up to $15,000 to someone in a year without having to file a gift tax return or use your lifetime gift/estate tax exemption of $11,580,000. The annual exclusion is per beneficiary, so you can give $15,000 to multiple people in the same year without having to file a gift tax return. The annual exclusion is also per person, so if you’re married, you and your partner can give a total of $30,000 per year to anyone you wish without using any of your gift/estate tax exemption ($23,160,000 for a married couple) or having to file a gift tax return.
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By B|O|SFor the average high school student dreaming of a career with significant income potential and future wealth, attending college is often key to making these dreams a reality. Despite the promising future that college and professional degrees can unlock, the steep (and rising) cost of college admission can be too high for some families to bear. Fortunately, 529 plans can ease this financial burden by offering a way for people to save for their family members’ education expenses in a tax-efficient manner. With careful planning, this tax-advantaged savings vehicle can even be used to cover education expenses for generations to come.
Show Notes:
Important Disclosures: https://www.bosinvest.com/disclosures.
The following are important footnotes from this episode:
1 U.S. Bureau of Labor Statistics, “Learn more, earn more: Education leads to higher wages, lower unemployment,” May 2020, https://www.bls.gov/careeroutlook/2020/data-on-display/education-pays.htm
2 Please note that the state of California has not adopted this federal change under the TCJA. Using 529 plan funds for this purpose will result in California income tax and a 2.5% penalty on the earnings portion of the withdrawal.
3 It’s important to consult your CPA to understand all tax implications and potential penalties related to the use of 529 plan funds, especially as they relate to recently passed laws.
4 Kathryn Flynn, “How to Change the Beneficiary on Your 529 Plan,” Savingforcollege.com, April 10, 2019, https://www.savingforcollege.com/article/how-to-change-the-beneficiary-on-your-529-plan
5 Changing the owner, versus the beneficiary, is unlikely to result in any income and/or transfer (gift/GST) tax since the IRS has not provided direct guidance to date on such a change. It’s important to consult your estate planning attorney and CPA to understand any and all gift tax and GST implications that come with certain beneficiary changes.
6 Kathryn Flynn, “Maximum 529 Plan Contribution Limits by State, Savingsforcollege.com, December 10, 2019. https://www.savingforcollege.com/article/maximum-529-plan-contribution-limits-by-state
7 Similar to the GST, you can give up to $15,000 to someone in a year without having to file a gift tax return or use your lifetime gift/estate tax exemption of $11,580,000. The annual exclusion is per beneficiary, so you can give $15,000 to multiple people in the same year without having to file a gift tax return. The annual exclusion is also per person, so if you’re married, you and your partner can give a total of $30,000 per year to anyone you wish without using any of your gift/estate tax exemption ($23,160,000 for a married couple) or having to file a gift tax return.