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Principled Advocacy For Families And Individuals With Disabilities And The Professionals Who Serve Them

How a 529 plan can be a valuable estate planning tool

On Behalf of | Jul 8, 2024 | Estate Planning

A key goal for many people when they create their estate plan is to help cover the cost of their grandchildren’s education. There are a number of ways to do that. One of them is putting assets in a 529 education savings plan.

While a 529 plan isn’t technically part of an estate plan, it definitely can be part of your estate planning. In addition to letting you put aside money for your grandchildren’s future, it offers a number of tax advantages.

The tax advantages of 529 plans

By putting money for your grandchild’s education in a 529 plan, you’re moving it out of your taxable estate. That means it’s less likely to be subject to state or federal estate taxes after you’re gone.

Further, in Illinois, contributions to the plan are tax deductible up to $10,000 ($20,000 for married couples who file taxes jointly). Meanwhile, interest that the money in the account earns isn’t taxed. The various Illinois 529 plans allow people to choose from a range of investments, so you can be conservative or take some risk, depending on how soon the money will be needed and your preferences.

Withdrawals (distributions) from the plan aren’t taxed as long as they’re used for a qualifying expense. These include both college and K-12 expenses as well as apprenticeship and other vocational program expenses and even college loan payments.

Parents or grandparents can establish a 529 plan to help save for a child’s educational or vocational expenses whether they do it as part of their estate planning or not. However, if you’re looking for a way to help ensure that your assets will be used to give a young loved one a better future and also lessen the chances that some of your estate will be lost to taxes, it’s also a good estate planning tool. With experienced legal guidance, you can learn more about 529s and other ways to leave a legacy of education for upcoming generations.