How to Use 529 Accounts as Part of Your Estate Plan


Section 529 college savings plans are an excellent way to provide for your child's college education because they accumulate earnings free of federal income tax. But did you know that they can also be beneficial as part of your estate plan?

For estate planning purchases, contributions to a 529 account are beneficial because they are treated as completed gifts. This means that they are eligible for the annual gift tax exclusion of up to $14,000. If desired, you can choose to spread a lump sum contribution over five years via IRS Form 709 and benefit from multiple gift tax exclusions.

ScholarShare, California's 529 college savings plan, has no annual limit on the amount you may contribute to each account, but there is an overall maximum balance limit of $371,000. This cap applies to all accounts opened for a beneficiary, although accounts that have reached this limit will still continue to accumulate earnings.

A 529 account does not require a family relationship, although most accounts are created to benefit children and grandchildren. They can be used at eligible schools nationwide, including universities or trade schools.

When considering setting up 529 accounts, many people worry about what would happen if the selected recipient chooses not to attend college. Since the accounts are specifically tied to educational expenses, the beneficiary cannot withdraw the money for any other purpose. However, the account owner can change the beneficiary with no tax consequences are long as the new beneficiary is in the same family and of the same or higher generation. This means the money could be given to a sibling or cousin of the original beneficiary with no adverse tax consequences. If you have no alternate beneficiary, you can withdraw the funds and pay a 10% tax penalty on any earnings.

How Can We Help?

Working with an experienced estate planning attorney is the best way to ensure that you have an estate plan that fits your needs. If you have questions about how to incorporate 529 accounts into your overall estate plan, please call our experienced Pasadena attorneys at (626) 683-8113 or email us at