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Expanded Benefits for 529 Plans

New Rules Benefit 529 College Savings Plans As An Estate Tool – Estate Planning

The Tax Cuts and Jobs Act includes a provision to now allow 529 Plans to be used for private elementary and high school expenses, rather than just college related expenses. The new rules are a treat for both parents and grandparents looking for a better way to pay for private educational costs.

Until now, the only plan that allowed for tax-free earnings growth was a Coverdell Education Savings Account (ESA). Limitations on contributions and income has made these plans unfavorable for many families.

A key notable benefit to a 529 versus a Coverdell ESA includes transferability. Funds in a 529 account may be transferred from the original beneficiary to another. Another benefit is the fact that funds in a 529 may grow perpetually, and never have to be used. Some families are using this feature as an estate planning tool, allowing unused funds in a 529 to pass along to future recipients.

The new tax plan does limit the amount used for K-12 expenses to $10,000 per year. Any current funds held in an existing Coverdell ESA account may be rolled over to a 529 plan with no tax consequences.

Below are the new benefits to a 529 Plan versus a traditional Coverdell ESA plan:

Named after the IRS Code it falls under, Section 529 plans have ballooned to $282 billion in assets (as of the 3rd quarter of 2017) since their inception in 1997. Section 529 plans were initially intended to provide parents of young children the ability to invest money for future anticipated college related expenses.

These plans offer two primary benefits: assets grow tax deferred and come out tax free for qualified expenses; and, contributions made by parents and grandparents are considered a gift, thus proving a tax benefit for some contributors.

Thank you for reading, 

The Financial Detox® Team at Labrum Wealth Management

Source: IRS, www.congress.gov/bill/115th-congress/house-bill/1


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