Multiple Generations Can Use 529 College Savings Plans

Recently, we told you about new Minnesota legislation that allows either a credit or a deduction for Minnesotans saving for college through a 529 saving plan.

But did you know that a 529 can transfer to other beneficiaries while avoiding tax penalties. This way, you can contribute to the education costs for multiple generations. The 529 account must be used for one beneficiary at a time, but any remaining funds can be used toward education costs for anyone who is a relative of the original beneficiary.

The flexibility of a 529 plan can be a ‘gift that keeps on giving’ as opposed to a UGMA (Uniform Gifts to Minors Act) or a UTMA (Uniform Trust for Minors Act) that are taxable and considered assets of the beneficiary. At age 18, those funds become the property of the student and can be used for whatever they choose. The important thing to remember with a 529 plans is that as the account owner, you retain control of the assets and can choose a new beneficiary at any time.

“A 529 plan can also be an important way to project family values on education throughout the generations,” said Sharon Olson, president of Olson Wealth Group. “It serves as a subtle reminder that higher education is something to invest in.”

To insure that there is enough money in the 529 plan to last for years, you can contribute up to $70,000 ($140,000 for a couple) in a single year tax free, as long as you make that your only gift to that beneficiary in the following four years. This contribution is considered as taking place over a five-year period for gift-tax reporting purposes.

Discuss investment in a 529 plan with your advisor because when the account is used for multiple relatives, there can be some complications when you skip generations.  The generation-skipping tax (GST) may come into play. As of 2017, the GST tax exemption was set at $5.45 million so most tax payers won’t have to worry about this. However, other things to consider when changing beneficiaries is the family’s time frame, risk tolerance and choosing investments for the account that remain conducive to withdrawing money at a future date.

Remember, you cannot designate funds from a single account to multiple relatives at the same time.  If you use money designated for one person to pay for another’s education expenses, you’ll be subject to income tax and the 10% penalty on the earning portion of your withdrawal.

However, you can create a new account with the same beneficiary, roll over some of the funds from the existing account to the new one and switch the new account’s beneficiary to any relative of the original beneficiary.  Again, it’s best to talk to a tax advisor or your wealth management advisor before moving forward with a 529 plan that will be used for multiple generations. is a full service wealth management firm. With wise counsel and clear strategies, our experienced specialists provide tailored approaches that strive to maximize wealth.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program.

Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Excerpts taken from “Can a 529 plan last forever?” by Chana R. Schoenberger; Wall Street Journal: Aug. 6, 2017.

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