Have you dreamed of leaving a legacy for your grandkids and future generations? Such a legacy does not require a vast fortune or risky investments. Instead, you can give your grandchildren the gift of opportunity (and money). Simply push the use of the 529 College Savings Plan to its fullest potential.

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Standard Use of the 529 College Savings Plan

In case you’re not familiar with the primary benefit of the 529 Savings Plan, it is designed to offer tax-free growth of invested money as long as the funds are eventually used for qualifying education expenses. Many states offer tax deductions or credits for contributions made to eligible plans. However, the annual gift tax exclusion amount does limit contributions to 529 College Savings Plans.  Plus, you must make contributions in cash and not equities.  The states set maximum lifetime contributions.

When used as designed, the 529 College Savings Plan has many benefits.  However, one facet of the 529 plan makes it popular among clients with accumulated wealth.

The 529 College Savings Plan as a Multi-Generational Legacy

Deductions, flexibility, and tax-free growth of invested funds make the 529 College Savings Plan an uncommonly useful and effective wealth-building tool. For example, the account custodian may change the beneficiary as long as the beneficiaries are related.  Wealthy families of one generation often use this strategy to set funds aside for a later generation. Plus they reserve the right to adjust exactly which beneficiary eventually uses the funds for college expenses.

In addition, it is allowable to front-load five years of such contributions. You must track them across the following five years and keep in mind the lifetime contribution limits. And best of all, tax-free growth means the value of a 529 account can grow exponentially over the decades.

How It Works

To illustrate the value of compounding 529 funds over decades, consider a couple who funds an account for a child (of any age) with a single contribution: a five-year forward deposit of $150,000.  Instead of using the funds in this account for the child’s college costs, they decide to let it grow for future generations. Thirty years later, if the pool of assets grows at an average rate of 7%, there will be over $1MM in the 529. This is enough to fund the college costs of several grandchildren.  If left for fifty years from deposit and investment, the account could be worth over $4MM. This is a true legacy account.  

Guidelines

As long as all funds are eventually used for qualified purposes, growth will not be subject to taxes. In addition, the large asset won’t become part of the custodians’ taxable estate when they pass away. And although the student benefits from plan assets, the account custodian makes decisions about the investment and distribution of the funds.  This means you can use a 529 plan to make a completed gift and still maintain control over the ultimate use of the assets.

If you feel this college savings strategy can help you or you have questions about wealth management or estate planning, we encourage you to contact SYM Financial Advisors at 800-888-7968. 

 


Leaving a Legacy: Roth IRAs for Kids and Grandkids – Podcast

As parents and grandparents, we want to do all we can to lead our kids to a financially sound future. In this podcast Steve Yeager, Senior Vice President at SYM Financial Advisors, explains the process of using the Roth IRA in a unique way – to encourage, teach, and assist kids in saving for their retirement, as young as 12 or 13. Add the power of compound interest and this becomes an exciting opportunity for adults and teens alike.


Disclosure: The opinions expressed herein are those of SYM Financial Corporation (“SYM”) and are subject to change without notice. This material is not financial advice or an offer to sell any product. SYM reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. SYM is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about SYM including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request.