Using 529 College Savings Plans As An Estate Tool Under New Rules

The Tax Cuts and Jobs Act includes a provision to now allow 529 Plans to be used for private elementary and high school expenses, rather than just college related expenses. The new rules are a treat for both parents and grandparents looking for a better way to pay for private educational costs.

Prior to the Tax Cuts and Jobs Act, the only plan that allowed for tax-free earnings growth was a Coverdell Education Savings Account (ESA). Limitations on contributions and income has made these plans unfavorable for many families.

A key notable benefit to a 529 versus a Coverdell ESA includes transferability. Funds in a 529 account may be transferred from the original beneficiary to another. Another benefit is the fact that funds in a 529 may grow perpetually, and never have to be used. Some families are using this feature as an estate planning tool, allowing unused funds in a 529 to pass along to future recipients.

The new tax plan does limit the amount used for K-12 expenses to $10,000 per year. Any current funds held in an existing Coverdell ESA account may be rolled over to a 529 plan with no tax consequences.

Named after the IRS Code it falls under, Section 529 plans have ballooned to $282 billion in assets (as of the 3rd quarter of 2018) since their inception in 1997. Section 529 plans were initially intended to provide parents of young children the ability to invest money for future anticipated college related expenses. 

These plans offer two primary benefits: assets grow tax deferred and come out tax free for qualified expenses; and, contributions made by parents and grandparents are considered a gift, thus proving a tax benefit for some contributors.

If you would like to discuss how this and other plans fit into your situation, please contact us. 

Source: IRS, www.congress.gov/bill/115th-congress/house-bill/1

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Edward C. Goldstein, CFP®, MBA, President
CERTIFIED FINANCIAL PLANNER ™ Practitioner 
Financial Life Planning, LLC
10,000 Lincoln Dr. East, Suite 201
Marlton, NJ  08053
Phone: 856-988-5480
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