People who are interested in providing educational opportunities to their loved ones may want to consider contributing into a 529 plan. These plans are named after the section of the IRS code that defines them, and they provide you with a tax efficient vehicle within which you can contribute resources earmarked for educational expenses that your beneficiary will incur in the future.
The way that it works is that you make contributions incrementally and they are invested so that your 529 account appreciates over the years. When it comes time for the beneficiary to enter college the resources in the account can be utilized, and these distributions are not considered to be taxable income. This is one of the advantages from a tax perspective.
In addition, the appreciation itself is not taxed as long as the beneficiary does indeed wind up utilizing the resources for his or her education. We include the caveat “as long as” because you as the grantor may reclaim the assets placed in the account if you want to (though there is a 10% penalty along with income tax responsibility) and this is another one of the appeals.
From an estate planning perspective the 529 account would not be considered to be part of your estate. This may provide you with estate tax efficiency if your resources exceed the exclusion amount.
If you would like to find out more about 529 plans and other possibilities, simply take a moment to arrange for a consultation with a licensed and experienced Oklahoma City financial planning attorney.
Larry Parman
Author, President and Founding Attorney
Parman & Easterday
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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