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Using 529s as a tax-free gifting tool

Posted on June 19th, 2019 by CIG

Topic: Asset Management, Cash Flow, Charitable Giving, Wealth Management

529 plans can be a fantastic way to save for education expenses, but did you know they can also be used as a key part of your family’s gifting plan (i.e., estate plan), even if you don’t have children or intend to use the money for college or K-12 approved tuition expenses.

The key here is that the 529 plan can be passed down from generation to generation without ever paying taxes on the gains as long as future generations eventually use the money for trade school or college. Even if you don’t have children, a 529 plan could be a good way to leave money to your nieces, nephews and cousins. Remember that if your heirs don’t go to a post-secondary school or don’t need the money, they could pass the money to future generations.

When you create a 529, you establish what is effectively a trust for future generations, potentially avoiding any legal complexities, costs or accounting fees for additional trust tax returns. Instead of, or in addition to, establishing trusts for the next generation, consider the ease for you and your heirs of a 529 plan.  The money in a 529 plan, and the growth of that money, is excluded from your estate and not subject to federal or state estate taxes after it’s been there at least three years*. You can even front-load five years of 529 contributions for each beneficiary (up to $140,000)*.

If you’d like to explore adding 529 plans to your generational gifting strategy, ask your CIG Capital Advisors wealth management professional or schedule an appointment to speak to an advisor.

CIG Capital Advisors and its affiliates do not provide tax, legal, or accounting advice. This material being presented is for informational purposes only and is not intended to provide, nor be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

*Section 529 of the IRS Code, Form 709  https://www.irs.gov/pub/irs-pdf/f709.pdf