For many Marylanders, among the goals of careful estate planning are minimizing estate taxes (federal and state) and helping pay for the escalating costs of a good college education for their children or grandchildren. A 529 education savings plan can help accomplish both of the goals.
Many parents open 529 accounts when their children are young to start putting away money for their college education or even to help pay for private schools before their college years. It’s a tax-advantaged account, meaning the earnings aren’t taxed. Further, distributions (withdrawals) are not taxed as long as they’re used for designated expenses. Further, Maryland 529 plan contributions are partially tax deductible.
Lowering your taxable estate
The other big advantage of using a 529 plan as part of your estate planning is that it can help you decrease the value of your estate – thereby lowering or eliminating the estate taxes that can leave your heirs and other beneficiaries with less than you intended for them to have.
Maryland is among the states in which people’s estates can be subject to state estate tax as well as the federal estate tax. If you make your contributions carefully, you can also help the beneficiary avoid paying gift tax.
Leaving a legacy of prioritizing education
Another advantage of making 529 plans part of your estate planning is that you pass on the priority of education to your children or grandchildren. The other advantages of a 529 plan over a trust make them worth serious consideration. Note that 529 distributions aren’t limited to college expenses. They can be used for vocational and technical school expenses, apprenticeships and even kindergarten through high school expenses.
By having experienced estate planning guidance, you can learn more about 529 plans and other options for helping to fund your young loved ones’ education or other goals for the future while keeping tax burdens to a minimum.