529 plan changes 2024

529 Plan changes 2024 from San Jose Estate Planning lawyer – A 529 plan is a beneficial method of helping someone’s children or grandchildren prepare for the cost of college. It also provides significant benefits in estate planning. Contributions to a 529 account aren’t subject to federal income tax deductions.

However, depending on where you live, there might be a state income tax benefit, such as a deduction or credit, for contributions you make from the account if the funds are in that state’s plan. Some states provide income tax benefits regardless of where you create the 529 plan.

529 plan changes 2024 Federal Estate and Gift Tax Benefits

Contributions from a 529 account can also receive a gift and federal estate tax benefit. Currently, a contribution qualifies for up to $16,000 in annual gift tax exclusions per beneficiary. If the contribution doesn’t exceed this limit, you can avoid gift taxes, and it doesn’t reduce your lifetime gift or estate tax exemption.

Additional benefits might also be available depending on the rest of your estate and tax planning. You might be able to use up to five years’ worth of annual gift tax exclusions in one year by making contributions to a 529 plan. You can also contribute as much as $80,000 for each beneficiary without reducing your lifetime exemption or triggering a gift tax.

Avoiding gift taxes by making smaller contributions is also possible. However, if the gift size works for your estate plan, you can use the annual exclusion for the next five years. You can reduce the size of your estate for estate tax purposes by following this method.

You maintain some control over your money when it’s out of your estate. You can invest using any of the options 529 plans provide. You can also update the beneficiary if the 529 funds will be used for qualifying educational reasons.

529 Account Withdrawals, if Necessary

You can withdraw funds from a 529 account if your beneficiary won’t use it to pursue higher education or if you need it for another expense. The accumulated gains and income are subject to a 10% penalty and taxation. However, there is no penalty or tax on the original contribution.

Changing the beneficiary is a good idea if someone else in your family needs the money. Distributions will be tax-free if they remain on the account and use the funds for qualified educational costs.

The definition of qualified educational expenses has changed over the years. They initially didn’t cover the cost of computers and internet fees. However, they can now pay for books and other supplies, computers, tuition, room and board, and most fees.

A recent expansion of 529 funds allows the repayment of student debt. It is only for a specific amount. It’s also not tax deductible if the money goes toward paying interest on a loan.

A new law in 2021 also allows grandparents to create 529 accounts for their grandchildren. The distributions don’t count as income benefitting students applying for financial aid. Previously, any funds distributed from a 529 plan minimized the chance of financial aid approval.

Consider Your 529 Plan Options with an Experienced Estate Planning Attorney

You should contact one of our estate planning lawyers in San Jose or throughout the state of California to discuss whether setting up a 529 account can benefit your child or grandchild. You can save them the hassle of figuring out how to fund their education when it comes time to attend college.

Call us today to learn more about 529 plans and your available options during estate planning.  To schedule an appointment at our San Jose estate planning attorney or one of our other offices located throughout the state, call (800) 244-8814. 

If you have any further questions about estate planning and strategies to shield your wealth, or if you’d like to have your current asset protection plan reviewed to make sure it still meets your needs, please contact us at one of our offices located throughout the state of California 800-244-8814 to set up a consultation.