How 529 Plans Support Education and Estate Planning

Backpacks? Check. Notebooks? Check. Crayons, calculators, and lunchboxes? Check, check, and check. As families scramble to wrap up their back-to-school shopping, one item that rarely makes it onto the supply list (but absolutely should) is a 529 plan. While it may not fit in a backpack, this tax-advantaged savings account is one of the smartest tools available for funding education at every stage.

So whether you’re planning for private school, college, or even apprenticeships, a 529 plan helps you invest in your child’s future while making the most of your money today.

What is a 529 Plan?

A 529 plan is a tax-advantaged savings account designed to help families prepare for education expenses. Named after Section 529 of the Internal Revenue Code[i], these plans offer a powerful way to save for the future, whether that means private elementary school, college, or even certain apprenticeship programs. Key benefits include:

• Tax-Free Growth: Money in a 529 plan grows tax-deferred and can be withdrawn tax-free at the federal level (and often at the state level) for qualified education expenses like tuition, books, fees, room and board, and supplies.[ii]
• Broad Eligibility: Anyone (parents, grandparents, or even friends) can open or contribute to a 529 plan for a beneficiary with a Social Security or Tax ID number.
• Wide Range of Uses: These funds can cover:
  • K–12 tuition (up to $10,000 per year)
  • Certain apprenticeship programs registered with the U.S. Department of Labor[iii]
  • Up to $10,000 in student loan repayment for the beneficiary and their siblings

There are two types of 529 plans:

• Education Savings Plans: Work like investment accounts, with growth based on market performance.
• Prepaid Tuition Plans: Let you lock in today’s tuition prices for select schools, which can be helpful if you’re concerned about inflation.

How has the One Big Beautiful Bill affected 529 Plans?

Dive into the details in our article by Steve Moro, Director of Larson Tax Partners.

What Happens if You Don’t Use the Funds for Education?

Withdrawals for non-qualified expenses are subject to income tax on the earnings, plus a 10% federal penalty. However, recent updates allow for greater flexibility. For example, unused funds may now be rolled into a Roth IRA for the beneficiary, up to $35,000, subject to certain conditions.

How 529 Plans Fit into Legacy Planning

529 plans aren’t just for saving: they can be a strategic tool in a well-structured legacy plan. Here’s how:

• Annual Gifting with Tax Advantages: In 2025, individuals can contribute up to $19,000 per beneficiary per year without triggering gift taxes. Married couples can gift jointly for a total of $38,000 per beneficiary annually.
• Superfunding: You can “front-load” five years’ worth of contributions in a single year[iv], up to $95,000 per individual or $190,000 per married couple. This accelerates tax-free growth and reduces your taxable estate.
• Account Control: The account owner (not the beneficiary) retains full control of the assets, including the power to change the beneficiary or even withdraw funds if needed (though taxes and penalties may apply for non-qualified uses).
• Legacy Planning: You can open separate accounts for multiple beneficiaries, ensuring education funds are available across generations. Remaining balances can be passed on, continuing your educational legacy.

Final Thoughts

Back-to-school season is the perfect time to evaluate how a 529 plan might support your family’s education goals, and your long-term financial plan. Whether you’re a parent thinking about tuition next year or a grandparent planning a legacy, a well-structured 529 plan can deliver both flexibility and tax efficiency.

Want help integrating 529 planning into your broader wealth strategy? A Larson advisor can guide you through the right approach based on your family’s needs, your state’s rules, and your legacy goals.

[i] https://www.investopedia.com/terms/1/529plan.asp

[ii] https://www.invesco.com/education-savings/en/collegebound-529/insights/back-to-school.html

[iii] https://www.savingforcollege.com/article/529-plan-pay-apprenticeship

[iv] https://individuals.voya.com/document/practice-management/maximizing-value-529-plans.pdf