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Beyond education savings, these plans can work for you – not just your kids

Most commonly, 529s are known as a tool to save for college expenses tax-free, but even if you can cover college costs in other ways, don’t overlook how using these plans can benefit you. These investment vehicles can be used as a tax-efficient way to transfer wealth to future generations, reduce your estate taxes, and more.

Consider the goals you want to pursue with your estate and education planning. Do you want to minimize your taxable estate, provide for your loved ones’ education, or have flexibility to move the money? Once you know your goals, you can look deeper into your options.

529 PLAN BASICS

Costing almost nothing to set up, 529 plans offer several benefits, including tax-advantaged growth, flexibility, and high contribution limits.

Contributions to the plan are made with after-tax dollars, but earnings grow tax free, and withdrawals do, too, if used for qualified education expenses such as tuition, fees, books, and college room and board.

You can use the funds to pay for the education of any eligible family member, and you can change your beneficiary multiple times – so you can move money across generations without incurring taxes (as long as you don’t reach gift tax exclusions).

There’s no federal limit on the amount of money that can be contributed to a 529 plan, and many states offer additional tax benefits for contributions made to their own state’s plan. There’s also plenty of flexibility in how the money can be invested.

Scholarships can be used in conjunction with a 529 plan, and funds can be used to toward graduate school or qualified apprenticeship programs to help students learn a trade and start their careers.

THE HIDDEN BENEFITS

Much more than a college savings vehicle, 529 plans empower you with additional strategies that can work to your advantage – and help you make the most of your money now and in the future.

Reduce your taxable estate. Contributions to 529 plans are considered gifts for federal estate tax and state estate tax purposes, meaning you can remove money from your taxable estate by contributing to a 529 plan.

Roll a 529 plan over into a Roth IRA. Starting 2024, the SECURE 2.0 Act makes it possible to roll over unused 529 plan funds to a Roth IRA when owned by the beneficiary, turning education savings into retirement savings. The 529 plan must be active for more than 15 years, the funds must be in the account for at least five years, and up to $35,000 can be rolled over to the Roth IRA over the account beneficiary’s lifetime (annual contribution limits for IRAs still apply).

After moving unused 529 plan funds to a Roth IRA, you designate yourself as the beneficiary. After this, you can contribute money to the plan and invest it in a variety of investment options. When you retire, you can withdraw the money from the plan tax-free and use it to pay for qualified retirement expenses, such as living expenses, healthcare costs and travel.

Take control over how your assets are distributed. You can change the beneficiary at any time, giving you control over how your assets are distributed after your death.

Pay tuition in cash – to the 529 plan. Instead of writing a check to the institution, fund a 529 plan, which could allow you to take a deduction on that amount. Then pay the tuition straight from the plan. You can also fund tuition out of a Uniform Transfers to Minors Act (UTMA) transaction or trust account.

Save for college expenses for multiple children or grandchildren. Open a single 529 plan and change the beneficiary as needed – making it easier for you to plan your annual contributions and distributions.

Gift the money to a beneficiary. You can gift up to $17,000 per year per beneficiary (or $34,000 if you’re married) to a 529 plan without incurring gift taxes. This is a good way to help the beneficiary save for college without having to pay taxes on the gift.

Gift money to family members or friends. A 529 empowers you to gift up to five years’ worth of annual gift tax exclusions in a single year without incurring gift taxes, so you could gift up to $85,000 per year per beneficiary or $170,000 per year per beneficiary if you’re married.

Gift money to a donor advised fund without incurring gift taxes. A donor advised fund is a type of charitable giving account that allows you to make donations to charity and then recommend how the money is used over time.

With these tax-saving options, even if you can afford to pay cash for college doing so may not be in your best interest. Explore your options and consult with your financial advisor or estate planning attorney to uncover which strategy can help you make the most of this tax-advantaged investment vehicle.

NEXT STEPS

• Consider what goals you want to pursue with your estate and education planning and if any of these strategies
could benefit you and your family

• Evaluate and compare 529 plans to determine the one that aligns best with your end goals

• Talk to your financial advisor for perspectives on choosing a 529 plan

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Material created by Raymond James for use by its advisors. The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James is not affiliated with any other entity listed herein. © 2023 Raymond James Financial Services, Inc., member FINRA/SIPC. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. 22-BDMKT-5852 MM 10/23

Poitevint Financial, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc.

Stephen “Phillip” Poitevint, Certified Financial Planner, is located at 908 Tallahassee Highway, Bainbridge, Georgia and can be contacted at (229) 246-7208 and 67A Town Center Drive, Huntsville, Alabama and can be contacted at (256) 203-8000 or www.raymondjames.com/poitevintfinancial/