529 Plans as a Wealth Transfer Tool: 529 plan basics

 In Estate Planning, Tax Law

A 529 plan is a tax-advantaged savings plan parents may utilize to save for their children’s future education costs.

These plans are federally authorized by Section 529 of the IRS and are sponsored by states, state agencies, or educational institutions.

There are two types of 529 plans:

A prepaid tuition plan allows the account holder to purchase credits at participating colleges or universities (usually public, in-state) at their current price for future tuition and fees. The account holder may not pay for future room and board under this plan, and the program may not be used to prepay for tuition at elementary and secondary schools. These plans are sponsored by state governments and are not guaranteed by the federal government. Additionally, not all states guarantee the money they sponsor in a prepaid tuition plan. If the sponsoring state experiences a financial shortfall, the account holder may lose some or all of their money.

An education savings plan is an investment account that a saver may open on behalf of its beneficiary’s future higher-education expenses. This includes tuition, mandatory fees, and room and board. Education saving plan withdrawals may be used at any college or university, including some institutions outside the US. These plans may also finance $10,000 per year per beneficiary at any public or private elementary or secondary school.

Estate Planning is an important component of financial planning. At Bach, Jacobs & Byrne, P.A., we address tax issues and avoidance as part of estate planning. If you live in Sarasota, Manatee, or Charlotte County, contact Bach, Jacobs and Byrne, P.A. at (941) 906-1231 to evaluate whether your estate plan is tax efficient.

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