These versatile savings accounts are a powerful estate planning vehicle.
Most of us associate 529 accounts with college savings. They’re flexible, allowing you to transfer assets to anyone, including yourself, for the express purpose of furthering the education of your beneficiary. But did you know that a 529 can be a powerful estate planning tool?
Modern estate planning
These specialized savings accounts have advantages for the beneficiaries – but there are benefits for the donors, too, given the tax advantages and the option to change heirs.
The tax rules that govern these accounts allow you to pare down your taxable estate, potentially minimizing future federal gift and estate taxes.
With 529s, you can make a lump-sum contribution of up to five times the annual limit of $18,000. That means you can gift $90,000 per recipient ($180,000 for married couples), as long as you denote your five-year gift on your federal tax return and do not make any more gifts to the same recipient during that five-year period. However, you can elect to give another lump sum after those five years are up. In the meantime, your investments have the luxury of time to compound and potentially grow.