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529s offer pleasant estate planning benefits for new parents

As a new parent, you have big dreams for your child, including having them go to college one day. It is no secret, though, that college is expensive. So, you start saving now by taking out a 529.

A 529 can do more than just fund your child’s education. It can be an estate planning tool that provides gift tax advantages and could potentially fund the education of your children, grandchildren and perhaps even generations to come.

What is a 529?

A 529 plan is a tax-advantaged education savings account. The child is named as the account beneficiary in a 529.

Funds in a 529 can be used to pay for specific qualified education expenses tax-free. Funds in a 529 can also be used to prepay tuition at certain universities at the current rate.

529s and the gift tax

One advantage of funding a 529 is that these contributions qualify as a gift for tax purposes. They will not be taxed as long as they do not go over the annual gift tax exclusion.

Even better, you can pay up to five years’ worth of gifts into the 529 all at once without being subject to the lifetime estate tax exemption.

Beneficiaries of a 529

When you first fund your 529, you will name a beneficiary, generally your child. The beneficiary is the person who will receive account assets if they use them for qualified education expenses.

However, what if the beneficiary does not seek higher education or does not use all the funds in the account? The beauty of a 529 is that beneficiaries can be changed to another child or even a grandchild. This means the wealth in a 529 can be spread over generations.

A 529 can be a useful tool for wealth transfer

As this shows, a 529 can be a useful tool to transfer wealth to future generations. New parents in Alaska may initially think the 529 is just for the benefit of their child but it also offers them gift-tax and estate-tax benefits and can be used as a vehicle to transfer wealth with the condition that it be used for education.