New York Estate Planning & Elder Law Blog
Planning for your children’s educational needs is a worthwhile goal. Fortunately, various options exist for satisfying this goal. A 529 plan can prove to be a powerful tool for paying tuition as well as paying for other education-related expenses while realizing tax advantages.
Following your death, however, no certainty exists that later plan holders will continue utilizing these plans to pursue your educational goals. Instead, you might decide to create one or more 529 plans to make sure that your children, grand-children, or other loved ones can pursue educational objectives.
How 529 Plans Function
529 plans are investment accounts that are sponsored by the state for parents and other loved ones to contribute to a child’s education. While contributions to a 529 plan cannot be deducted from a person’s taxes, funds once placed in 529 plans grow tax-free and earnings can be withdrawn tax-free for federal income tax purposes assuming they are used for qualified education expenses.
Some examples of common costs qualified under 529 plans include tuition as well as equipment, supplies, and some times of room and board. 529 plans can also be utilized to pay a maximum of $10,000 per year per student for tuition.
529 Plans Offer Flexibility
Contributions made to 529 plans are separate from your taxable estate and protected from gift taxes by your lifetime gift and estate tax exemption. If you’re concerned about gift taxes, it’s possible to accelerate a maximum of five years’ worth of annual exclusions to a single year, which will allow the plan creator to make nontaxable contributions of a maximum of $75,000 per beneficiary in one year rather than spread out over a duration of five years.
529 plans also provide a substantial degree of flexibility. Based on a plan’s terms, owners can decide how distributions are timed and can also witch beneficiaries between family members. 529 plan creators can also pass funds from one state’s plan to another’s with relative ease.
Transferring a 529 Plan to a Trust
Creating a 529 plan provides several benefits, which include:
- Protecting assets. The plans let the creator hold on to tax-advantaged education funds for an unlimited amount of time to benefit children or grandchildren and keeping these from being used for unintended purposes.
- Creating guidelines about eligibility. The plans let creators construct guidelines addressing which family members qualify for educational assistance. 529 plans also let creators distinguish how funds will be used or distributed in case they stop being needed to perform an educational role.
- Interacting with Non-529 Accounts. These plans permit noncash contributions to the funds. Interacting with assets located outside of 529 plans is also easy to do.
Remember, trusts involve a complex area of law. If you think a 529 might, one of the best things you can do is speak with a knowledgeable estate planning lawyer.
Speak with an Experienced Estate Planning Attorney
Leaving behind an educational goal for people you care about requires detailed planning, but can be a rewarding experience. To achieve this goal, you should not hesitate to speak with an experienced estate planning attorney. Contact Ettinger Law Firm today to schedule a free case evaluation.