Estate Planning Benefits with 529 Plans
529 Plans can help with you:
Reduce current and future tax liability
Pass wealth on to children, grandchildren and future generations
Fully control assets even though assets are outside your estate
Myth: 529 plans are inflexible. While 529 plans are certainly one of the best ways for many families to save for future education costs, many think that the only benefit 529 plans offer is a tax-free way to save for college.
Fact: In 1996, when Congress drafted the legislation (which would eventually create the framework for 529 plans nationwide), they actually put additional provisions into the legislation to give account owners maximum flexibility with unique gifting, estate planning and control benefits.
Myth: The money in a 529 plan account must be used to pay for education expenses for the benefit of the designated beneficiary. Many people think 529 plans are a “use it or lose it” proposition, i.e., that if the intended beneficiary doesn’t go to college, or gets a scholarship, or if there’s money left in the 529 plan account when the beneficiary graduates, the beneficiary has claim to the money in the account or the account owner somehow must forfeit the money.
Fact: The beneficiary never has any access or entitlement to the money in a 529 plan account — not when they turn 18 (or whatever the age of majority is in the state in which they live), not if they go to college, not if they don’t go to college, not when they graduate, not even when the account owner passes away. The account owner is the only person with control over the money in a 529 plan account.
Myth: A withdrawal from a 529 plan account must be used for education expenses or it will be subject to tax and penalty. Another misconception is that when an account owner takes money out of their 529 plan account and uses it for something other than “qualified” education expenses, the entire withdrawal is subject to tax and penalty.
Fact: Only the earnings portion of a non-qualified withdrawal from a 529 plan account is subject to tax and penalty.