Smart estate planning involves more than creating a will and other documents traditionally associated with an estate plan. It often involves taking other important steps to help ensure that your assets are transferred to your designated beneficiaries as smoothly as possible after you’re gone.
Designating beneficiaries directly on your investment and retirement accounts is crucial. Including intended beneficiaries as payable-on-death or even joint owners on bank accounts and other assets can also simplify things.
For those whose estate planning goals involve helping to finance their children’s or grandchildren’s education, a 529 education savings plan can be a valuable (and tax-efficient) tool.
How does a 529 plan work?
A 529 plan is a tax-advantaged account that lets parents and grandparents make deposits (known as contributions) to save for a child’s education. While they’re most closely associated with college savings, the money can be used for vocational training and apprenticeships as well as for K-12 educational expenses.
States have their own unique 529 plans. The Kentucky Educational Savings Plan Trust (KY Saves 529) allows people to make contributions each year up to the current federal limit without incurring gift taxes. When funds are distributed (withdrawn), they aren’t subject to state or federal taxes as long as they’re used for a “qualified” purpose involving education or job training.
Opening a 529 plan can also help parents and grandparents reduce the potential for federal and Kentucky estate taxes up to the eligible amount. It’s important to know what the current exemption limits are when strategizing contributions.
A 529 plan is just one option for helping a young loved one get the best possible education and/or career training. It can also help other beneficiaries by minimizing or even eliminating the amount of assets that can be lost to taxes. It’s crucial to determine what works for your family. Getting sound estate planning guidance is the best first step.