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Why a 529 plan can be an important part of your estate planning

On Behalf of | Jun 7, 2024 | Estate Planning

One of the most important initial first steps in estate planning is determining what your primary goals are. If you’re a parent or grandparent, one of these goals may be to ensure that the children in your life can get the best possible education. 

A 529 education savings plan can help you do that. It can also give you and your beneficiaries some important tax benefits – both in the short term and after you’re gone. Let’s take a brief look at how these plans work and how they work with your estate planning.

The tax advantages of a 529

A 529 education savings plan is a tax-advantaged account that lets you make deposits (contributions) to save for a child’s education (college or K-12) or apprenticeships and other vocational training. The contributions aren’t tax deductible, and the interest earned isn’t taxed. As long as the distributions (withdrawals) are used for a “qualified” purpose, they aren’t taxed either.

The Kentucky Educational Savings Plan Trust (KY Saves 529) allows people to make contributions up to $18,000 annually without gift taxes being levied. Further, by putting money for a loved one’s education in a 529, you can reduce your taxable estate. That’s particularly important since Kentucky estates can be subject to state estate taxes as well as federal estate taxes. These can take a big chunk out of the assets you leave to heirs and other beneficiaries.

Estate planning is more than wills and trusts

Comprehensive estate planning – particularly for those with considerable assets – involves a lot more than putting the right estate plan documents in place (although that’s a significant part of it.) It can involve beneficiary designations on retirement and investment accounts, adding joint or payable-on-death owners to some assets and finding ways (like 529 plans) to help cover the ever-increasing cost of a good education. Having sound tax, financial and legal guidance as you do this can help make the most of the assets you have to share.