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