What Affluent Families Need to Know about 529 Plans for College Savings

What Affluent Families Need to Know about 529 Plans for College Savings

If you think back to your college days, you probably remember student loans, financial aid and living on ramen noodles to cover tuition.

According to the National Center for Education, tuition costs have risen more than 350 percent in the last 30 years. Even for families with the means to pay for it outright, college savings plans can carry major advantages.

Many parents are already funding 529 plans because they’re like a Roth IRA on steroids. An investor’s money can grow tax-deferred, and as long as the proceeds are used to pay for education purposes, no taxes are paid on the appreciation. Plus, unlike a Roth IRA, there are no income limits on those who can contribute to a 529 plan. They’re also designed to be flexible and can be long-lasting, which brings specific benefits for more affluent families.

Here are some lesser-known ways to use a 529 plan to fund education expenses.

Use a 529 to pay for K-12 private school.
This is a game changer. Up until 2018, 529s could only be used to cover tuition and other university expenses. But thanks to a change in the rules, now they can be used to pay for private school from kindergarten to graduation, up to $10,000 per year. With that in mind, it makes sense for married couples to look at setting up a 529 account as soon as they begin to think about starting a family. In the investing world, there is no power like time, and having the money work longer in the investment markets can give your 529 balances an extra boost.

Power load your 529 with up to five years of contributions.
Under federal tax law, any individual is allowed to gift any beneficiary of a 529 plan up to $15,000 per year, free of gift tax (as of August 2018). That means a two-parent household can contribute up to $30,000 to a 529 annually for each child without having to report it on a gift-tax return. But when you start your 529, the law says you can pay the first five years’ worth of contributions all at once (called “5-year election”) – up to $150,000 per child. Starting with that much money can make a huge difference in returns, especially if you’re starting late.

Anyone in the family can contribute.
Grandparents, aunts, uncles, a rich second cousin – anyone who wants to see your child go to a good school can put money into your 529. A large (and generous) family could contribute a sizeable sum of money every year.

529s can last for generations.
The real beauty of a 529 plan is that you can change the beneficiaries once the original recipient ages out. It can become a multi-generational fund that pays for private school and then college for your children, your grandchildren, your nieces, nephews and on and on. Set it up in the right way and with the right amount of funding, and your 529 could outlast you as it benefits your family for decades to come.

The IRS does have some rules in place on beneficiary changes so that your account does not become a “taxable gift.” The beneficiary change must be to a “qualified” family member, and it cannot involve skipping generations.


Paying for college is expensive, even for families of means. No one wants their child to go into debt, and you definitely shouldn’t tap into your retirement savings to cover tuition. You can look at other options, too, like a Coverdell savings account that can pay for books, supplies and other educational costs, but the annual contribution limits are a lot tighter than a 529. Ultimately, you should speak with a financial planner and your accountant to make the right choice for your family.


Scott Schroeffel is a financial consultant for Raymond James Financial Services, Inc. and a senior vice president of Pinnacle Asset Management. He can be reached at 865.602.5277 or by email at Scott.Schroeffel@pnfp.com.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Scott Schroeffel and not necessarily those of Raymond James.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC, and are not Insured by bank Insurance, the FDIC orally other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank, and ore subject to risks, Including the possible loss of principal. Pinnacle Asset Management and Pinnacle Bank are not registered broker/dealers, and are independent of Raymond James Financial Services.

Investment Advisory Services are offered through Raymond James Financial Services Advisors, Inc. Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. This and other information about 529 plans is available in the issuer's official statement and should be read carefully before investing. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan.

As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor's or the designated beneficiary's home state offers any tax or other benefits that are only available for investment in such state's 529 savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state. Raymond James does not provide tax services.

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