Learn the Benefits of 529 Estate Planning

 

 

An investor should consider the Program's investment objectives, risks, charges and expenses before investing. The Program Disclosure Statement and Participation Agreement (www.scholars-choice.com/pds) contains more information and should be read carefully before investing.

If an investor and/or an investor's beneficiary are not Colorado taxpayers, they should consider before investing whether their home states offer 529 plans that provide state tax and other benefits such as financial aid, scholarship funds and protection from creditors that are only available to state taxpayers investing in such plans.


Forget the Myths, Know the Facts

 

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529 plans are inflexible

While 529 plans are certainly one of the best ways for many families to save for future education costs, many think that the only benefit 529 plans offer is a tax-free way to save for college.

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In 1996, when Congress drafted the legislation (which would eventually create the framework for 529 plans nationwide), they actually put additional provisions into the legislation to give account owners maximum flexibility with unique gifting, estate planning and control benefits.


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A withdrawal from a 529 plan account must be used for education expenses or it will be subject to tax and penalty

Another misconception is that when an account owner takes money out of their 529 plan account and uses it for something other than “Qualified” education expenses, the entire withdrawal is subject to tax and penalty.

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Only the earnings portion of a non-qualified withdrawal from a 529 plan account is subject to tax and penalty.


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A 529 plan account can only be established by an individual

A Trust — and other entities, such as for-profit corporations and non-profits — can be the owner of a 529 plan account. Using this strategy, a Trust, for example, may be able to reduce the tax burden — from potentially the highest tax bracket to zero.


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When making a non-qualified withdrawal from a 529 plan account, the account owner is taxed

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Non-qualified withdrawals from a 529 plan account are taxed at the ordinary income tax rate of the distributee —either the beneficiary or the owner. So, if the beneficiary is in a lower tax bracket, you may choose to have the check made payable to them — instead of yourself, as account owner — thereby lowering the tax burden.


A 529 plan account owner can gift only $15,000 per year — $30,000 if filing jointly

Because 529 plan contributions are “Completed Gifts” — out of the account owner’s estate — the Gift Tax rules apply. So, the most I can give is $15,000, right?

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Wrong. By taking advantage of a special provision of Section 529 of the tax code, an individual can contribute up to $75,000 per beneficiary — and couples can contribute up to $150,000 per beneficiary — in a single year. Gifts of $400,000 or more can be made to each beneficiary in a single year, using one’s Lifetime Gift Tax Exclusion, or Lifetime Unified Credit, which currently stands at over $22 million. No gifting limits apply to accounts in which the designated beneficiary is either the account owner or the account owner’s spouse.1


Click here for more information on how to reduce the value of your client’s taxable estate while they are investing in a loved one's future. 

 


1
The Maximum Contribution Limit for the Colorado-sponsored 529 plans. Contributions in excess of the annual Gift Tax Exclusion ($15,000 for individuals; $30,000 for joint filers) – or the Section 529 5-year “Forward-Gifting” provision limits ($75,000 for individuals; $150,000 for joint filers) – would be deducted from the Giftor’s Lifetime Unified Credit. Original $5MM amount was indexed for inflation occurring after 2011; was $5.49MM in 2017. Effective date – the provision is effective for estates of decedents dying and gifts made after December 31, 2017 and before January 1, 2026.
 

 

GET STARTED TODAY


Take three simple steps toward helping your clients to achieve their investment goals. 
Our products cover a variety of strategies for diverse investment needs.

 

STEP 1

Review the wide variety of investment options, low fees and competitive pricing.

STEP 2

Download our Scholars Choice Enrollment Form. 


Please note: Not all Broker-Dealers are required to use Scholars Choice paperwork.  Please check with your firm's back office. 

STEP 3

Send the completed forms to: 

Scholars Choice College Savings Program
P.O. Box 219372
Kansas City, MO 64121 
Fax: 1-617-559-8940

 

Be sure to check with your firm regarding internal 529 processing procedures.

All investments involve risk, including loss of principal. Past performance is no guarantee of future results.

IMPORTANT INFORMATION: An investor should consider the Program's investment objectives, risks, charges and expenses before investing. The Program Disclosure Statement and Participation Agreement contains more information and should be read carefully before investing. If an investor and/or an investor's beneficiary are not Colorado taxpayers, they should consider before investing whether their home states offer 529 plans that provide state tax and other benefits benefits such as financial aid, scholarship funds, and protection from creditors that are only available to state taxpayers investing in such plans.

Investments in the Scholars Choice College Savings Program are not insured by the FDIC or any other government agency and are not deposits or other obligations of any depository institution.  Investments are not guaranteed by the State of Colorado, CollegeInvest, QS Investors, LLC, Legg Mason Investor Services, LLC, or Legg Mason, Inc., or its affiliates and are subject to risks, including loss of principal amount invested.

Legg Mason, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Scholars Choice® is a registered service mark of CollegeInvest. CollegeInvest and the CollegeInvest logo are registered trademarks.  Administered and issued by CollegeInvest, State of Colorado. QS Investors, LLC is the Investment Manager and Legg Mason Investor Services, LLC is the primary distributor of interests in the Program; together they serve as Manager of the Program.  QS Investors, LLC, ClearBridge Investments, LLC, Brandywine Global Investment Management, LLC, Western Asset Management Company, and Legg Mason Investor Services, LLC are Legg Mason, Inc. affiliates. Thornburg Investment Management, Inc. and Templeton Global Advisors Limited are not affiliated with Legg Mason, Inc.

Audited financial statements for the Scholars Choice® College Savings Program, including balance sheets, income statements, cash flow statements, and the Management's Discussion and Analysis (MDA), may be viewed at https://www.collegeinvest.org/about-us/financial-statements or a hard copy may be obtained by calling Scholars Choice at 1-888-572-4652.