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Utilizing Your 529 as an Estate Planning Tool

  • Oppenheimer & Co. Inc.
  • April 15, 2024

529 accounts, also known as state sponsored savings accounts, have always been considered a useful way to save for educational expenses. Beyond their traditional role, 529 accounts present multiple advantages in estate planning, offering an avenue for gifting while maintaining ownership. Read on to learn more about the mechanics of 529 accounts, their utility in estate planning, and how you can optimize their benefits.

Tax Advantages and Contribution Limits

529 plans are notable for their tax advantages. Contributions to your 529 grow tax-deferred, and withdrawals for qualified education expenses, including tuition and room and board, are tax-free at the federal level. Many states also offer tax benefits, including deductions or credits on contributions.

Contributions to 529s are considered a completed gift from the donor to the beneficiary, and will potentially reduce future estate tax liabilities. As a donor, you may make a lump-sum contribution to a 529 account up to five times the annual limit of $18,000. As long as you denote your five-year gift on your federal tax return and do not make more gifts to the same recipient during that five-year period, you may contribute up to $90,000 in a single year to a beneficiary's 529 plan (or $180,000 for married couples in 2024), fast-tracking the transfer of wealth out of the estate while leveraging the account’s tax-free growth potential.

Account Control

Unlike direct gifts or trusts, contributors to a 529 plan retain control over the account, including the ability to change beneficiaries or reclaim funds. Reclaimed funds are subject to your federal tax rate and an additional 10% penalty on the earnings portion of your withdrawal if they are not used for the designated beneficiary’s eligible education expenses. This allows for flexibility in estate planning, ensuring that the funds are used as intended.

Options you may consider:

  • Using the funds for other types of education or education expenses, such as graduate school, room and board, books and supplies, etc.
  • Changing the beneficiary to a qualified family member

Rolling Your 529 Plan into a Roth IRA

Through the SECURE 2.0 Act, the unused funds in your 529 plan may rollover into a Roth IRA for the beneficiary if the 529 account is eligible (and has been owned for at least 15 years). With this new rule, you will not incur the typical 10% penalty for nonqualified withdrawals or generate taxable income.

Multigenerational Planning

529 plans can be passed down to future generations, allowing for the continuation of educational funding. If the original beneficiary does not need all the funds, the account owner may change the beneficiary to another family member without tax consequences, prolonging the educational legacy and estate planning benefits.

When incorporating 529 plans into your estate planning, consider the following:

  • Examine the specific rules, benefits, and limitations of 529 plans in your state or the state where the plan was originally established.
  • Evaluate the investment options and associated fees within the plan, as these may impact the growth of contributions over time.
  • Ensure that your 529 account is integrated with other components of your estate plan, such as wills, trusts, and life insurance, to create a cohesive strategy.

529 accounts are a powerful tool for estate planning, offering tax advantages and the ability to support educational goals across generations. By strategically utilizing these accounts, you can effectively manage your estate size, provide for your loved ones' education, and leave a lasting legacy.

Interested? Click here to learn more about 529 savings plans.


This information is not a comprehensive resource of all requirements, and is not intended as legal, tax, or other professional advice. The information contained herein is general in nature, has been obtained from various sources believed to be reliable and is subject to changes in the Internal Revenue Code, as well as other areas of law. Neither Oppenheimer & Co. Inc., nor any of its employees or affiliates, provides legal or tax advice. Please contact your legal or tax advisor for specific advice regarding your circumstances.

Before buying a 529 Plan, you should find out about the particular plan you are considering.  Request an offering circular or official statement, which contains pertinent details such as objectives, risks and fees, from your Financial Advisor.  Please read it carefully before investing or sending money.  Many states offer favorable tax treatment or other valuable benefits to their residents in connection with investments in their own 529 College Savings plan.  529 College Savings plan offered by each state differ significantly in features and benefits.  The optimal plan for you as an investor depends on your individual objectives and circumstances.  In comparing plans, each investor should consider each plans investment options, fees and state tax implications, out of state 529 plans may not have the same tax benefits as those offered to in state residents. Qualified expenses include tuition, fees, room and board, books and other supplies.  Distributions may be subject to certain state taxes.  For non-qualified expenses a 10% federal mandated penalty on the earnings withdrawn will apply.

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