Have you planned for a 529 Plan? Part 2 – Planning Strategies

by | Sep 22, 2021 | Smart Financial Tips

Now that we’ve looked at the details of how 529 Education Savings Plans (ESPs) work, we’ll explore some further strategies in education planning.

Is it really a loss?

What stops many parents from opening and funding a 529 Plan is uncertainty.  What if their child chooses not to go to college?   Will all that money be “lost?” Could most of these taxes and penalties have been avoided? 

What many parents do not realize is they can easily change a beneficiary on their current 529 Plan to another child within the same generation.  The IRS is pretty generous with the definition of “family member,” which opens up more options.  Most plans make it as easy as logging into your account online and changing beneficiary information on the spot.  Transfers or rollovers to other 529 Plans are also allowed, as long as these funds are reinvested in another 529 Plan within 60 days of the original transfer.

Reduce Your Estate

If you’re a grandparent who wants to help your grandchildren with education expenses, you can do so by gifting each grandchild up to $15,000 a year in their 529 Plan.  Starting these gifts while your grandchildren are younger provides for compounding growth over a longer period.  This, in turn, can help reduce your estate by a significant amount over the lifetime of gifting. 

Be direct

If you would like to gift more without triggering a gift tax filing, you can pay your grandchild’s tuition directly to the institution.  These payments do not count towards your annual gift exclusion amount.  There is no limit to the amount of payments you can make, and the best part is they are completely gift-tax free! 

A gift that keeps on giving

Another planning option to consider is a Dynasty 529 Plan.  This plan would basically change owners and beneficiaries as needed, covering education costs for multiple children within the same generation without a gift tax consequence. 

When used as a multi-generational planning strategy, these plans face possible tax implications, such as a potential gift and generation-skipping transfer tax.  Generation-skipping transfer tax may be triggered if the new beneficiary is one or more generations below the current beneficiary.  These plans also face contribution limitations and differences in treatments across state lines.  Some states, for example, consider changes in ownership of 529 Plans a distributable event.  Again, your financial advisor will help you navigate these dynasty waters.

What are the Pre-paid Tuition Plans (PTPs)?

While our focus has been on 529 Education Savings Plans, let’s briefly touch on what 529 Prepaid Tuition Plans cover.  The one big benefit of the PTP is locking in future tuition rates at current prices.  How does it work?  A parent selects the college or university their child will attend and opens a 529 PTP.  Parents pre-pay for a number of units or credits either in a lump-sum or installment payments, using today’s rate.  These units/credits will be available for your child once they are ready to attend school.  

Given skyrocketing tuition costs, this is a great way to control your child’s tuition costs in the future.  Not all states offer PTPs, and only one institution-sponsored PTP is currently available.  Suppose your child decides to go to a different college than the original college selected for the PTP. In that case, it is possible to transfer or get a refund of your funds in the PTP account, with certain limitations on gains and losses and limitations by participating colleges.  Reach out to your financial advisor to help you navigate this process.

The biggest drawback of utilizing the 529 PTP instead of the 529 ESP is that you’re only allowed to use these funds for tuition and fees, as opposed to tuition, fees, room, board, and other living expenses associated with attending college. 


If you see college as an important step in your children’s lives and have not considered 529 Plans, it may be time to talk to a financial advisor and consider this option.  There are other ways to save for education, and it’s always good to have options.  We are here for you whenever you’re ready to begin your 529 conversations.

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