Unveiling the Financial Advisor's Strategy to Utilize the Potential of a 529 Plan
In the world of education savings, 529 plans have emerged as a popular choice, particularly for high-net-worth families. These tax-advantaged accounts offer more than just a means to save for tuition; they serve as tax-efficient tools for wealth transfer, estate optimization, and preserving financial aid eligibility.
One key strategy in leveraging 529 plans is accelerated gifting, also known as superfunding. Families can contribute a lump sum equal to five years' worth of annual gift tax exclusions in one year, such as $190,000 for a married couple in 2025, per beneficiary without incurring gift tax. This boosts the 529 plan faster and maximizes tax-free growth.
Another advantage of 529 plans is estate tax reduction. By funding these plans fully, high-net-worth individuals reduce the size of their taxable estates, helping them stay below federal (currently $13.99M individual, $27.98M couple) and certain lower state estate tax thresholds. This is especially useful as 529 funds are removed from the estate while maintaining control and liquidity.
Grandparent-owned 529 plans have increased appeal after federal financial aid formulas now exclude nonparent-owned 529 balances, preserving aid eligibility for students. This enables grandparents to contribute significant resources across generations effectively.
When it comes to plan selection and cost management, families choose low-cost, state-run 529 plans to minimize fees, often combining plans with state-specific benefits like tuition discounts, while avoiding overfunding relative to realistic educational needs.
High-net-worth families sometimes name trusts as successor account owners of 529 plans. This ensures the account’s purpose aligns with family intentions long-term and leverages the tax advantages relative to high tax rates trusts often face.
Emphasis is placed on prioritizing retirement savings first, then building 529 balances to fund education without overextending finances, and reviewing plans annually to reconcile with changing family circumstances and goals.
A blended approach, funding 50% to 75% of the expected education cost into a 529 and the remaining balance in a taxable brokerage account, can offer flexibility for nonqualified expenses or alternative education plans.
529 plans remain the gold standard for education savings, particularly for high-net-worth families. However, other options like UGMA/UTMA custodial accounts can be used for continuing family gifting beyond 529 limits, and they eventually transfer control to the beneficiary, typically at age 18 or 21.
Grandparents can contribute annually to multiple 529 plans - one for each grandchild - as part of a broader multigenerational giving strategy. Annual contributions to 529 plans serve a dual purpose: They fund a meaningful cause while efficiently moving appreciating assets out of the donor's taxable estate.
Together, this multilayered approach allows affluent families to use 529 plans not just as vehicles for education funding but as tax-advantaged tools for wealth transfer, estate optimization, and preserving financial aid eligibility—maximizing both financial growth and legacy impact.
[1] Forbes. (2021, January 11). How High-Net-Worth Families Use 529 Plans For Estate Planning. Retrieved from https://www.forbes.com/sites/ashleaebeling/2021/01/11/how-high-net-worth-families-use-529-plans-for-estate-planning/?sh=56c375435e0d
[2] Investopedia. (2021, June 2). What Are UGMA and UTMA Accounts? Retrieved from https://www.investopedia.com/terms/u/ugma.asp
[3] CNBC. (2021, March 17). How to fund your child's college education without breaking the bank. Retrieved from https://www.cnbc.com/select/how-to-fund-your-childs-college-education-without-breaking-the-bank/
[4] IRS. (2022, February 11). 2025 Annual Exclusion for Gifts. Retrieved from https://www.irs.gov/businesses/small-businesses-self-employed/2025-annual-exclusion-for-gifts
[5] Kiplinger. (2021, June 1). How Grandparents Can Help Pay for College. Retrieved from https://www.kiplinger.com/slideshow/college/T052-S001-how-grandparents-can-help-pay-for-college/index.html
- Engaging in proper personal-finance management can include such strategies as accelerated gifting with 529 plans, which serve as tax-efficient tools for wealth transfer, estate optimization, and preserving financial aid eligibility, especially for high-net-worth families.
- In addition to leveraging the tax advantages offered by 529 plans, some families employ UGMA/UTMA custodial accounts to continue family gifting, providing education opportunities beyond the limits of 529 plans and eventually transferring control to the beneficiary upon reaching maturity, driving a blended approach that maximizes education savings and financial growth.
