By gifting assets to 529 College Savings Plans, your clients can help cover the costs of higher education in tax-efficient investment vehicles while reducing the value of their estates as part of a comprehensive financial plan.
While a 529 College Savings Plan is treated as an asset of the benefactor, usually a parent or grandparent, 529 assets don’t count as part of a client’s taxable estate.
Clients can also gift to 529 College Savings Plans without incurring gift taxes or penalties by taking advantage of the federal gifting limits. Clients can currently invest up to $14,000 per year without triggering a gift tax-a limit that’s doubled to $28,000 for couples. Early funding up to maximum limits helps plan assets get a head start on potential tax-free growth while reducing clients’ overall estates tax efficiently.
Clients looking to remove significant assets from their estates can forward-fund a 529 College Savings Plan. Through this strategy, clients can take advantage of up to five years’ worth of gift tax exclusions in a single year. This means that clients can fund a child’s 529 College Savings Plan with up to $140,000 in one year and enjoy the estate planning benefits right away.1 Plus, funding while a child is young gives assets in the plan more time to benefit from potential compounded interest. Plan owners can change the beneficiary at any time with no penalty, and withdrawals are tax-free as long as the funds are used for qualified higher education expenses.2
1 If an account owner utilizes the special five-year lump sum exclusion and dies within five years of the funding date, the portion of the contribution allocable to the years remaining in the five-year period (beginning with the year after the account owner’s death) would be included in the account owner’s estate for federal estate tax purposes. Clients should consult their tax advisors.↩
2 When withdrawals are used for non-qualified expenses, the earnings portion of the withdrawal will be subject to ordinary federal, any applicable state income tax and an additional 10% federal tax penalty.↩
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This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. Clients need to contact their attorney or other advisor regarding their specific legal, investment or tax situation.
Investments in 529 college savings plans are neither FDIC insured nor guaranteed and may lose some value. Some states offer favorable tax treatment to their residents only if they invest in the state’s own plan. Investors should consider before investing whether their or their designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program and should consult their tax advisor.
Before investing in a plan, investors should carefully consider the investment objectives, risks, charges and expenses associated with municipal fund securities. Plan disclosure documents contain this and other information about a plan, and may be obtained by asking your financial advisor, visiting oppenheimerfunds.com or calling 1.800.CALL OPP (225.5677). Investors should read these documents carefully before investing.