How 529 Plans Are Treated for Estate Planning and Taxes

A 529 plan can play a strategic role in estate planning, especially for families looking to reduce taxes while saving for education. Contributions to a 529 plan may be excluded from your taxable estate, potentially lowering future estate tax liability. In addition, the plan offers tax-free growth and tax-free withdrawals when used for qualified education expenses, making it an efficient way to transfer wealth.

A financial advisor can help structure contributions, address tax considerations and integrate goals into an estate plan.

How 529 Plans Work

A 529 plan is an education savings account that allows you to set aside funds for future education expenses. You can contribute to these plans with after-tax dollars, but the earnings grow on a tax-deferred basis. Not to mention, withdrawals for qualified educational expenses are tax-free. This tax treatment makes 529 plans an efficient way to save for college or other types of higher education, including vocational training.

529 plans also allow for flexibility. The account holder can change the beneficiary or even transfer the funds to another qualified family member without incurring any penalties. This gives you the opportunity to adapt how you use the funds as circumstances change. For example, say the original beneficiary receives a scholarship or chooses not to pursue higher education.

Many 529 plans are also offered by states, which may provide additional tax deductions or credits for contributions, depending on the state of residency. Even if you don’t live in the state that offers the plan, you can still enroll in it.

How Much Can You Save in a 529 Plan?

Although 529 plans don’t have set annual contribution limits, they are subject to federal gift tax rules. In 2025, individuals can contribute up to $19,000 per beneficiary — or $38,000 for a married couple — without triggering gift taxes, thanks to the annual gift tax exclusion. For comparison, the exclusion in 2024 was slightly lower, at $18,000 for individuals and $36,000 for couples.

Superfunding a 529 Plan

A unique feature of 529 plans is the five-year superfunding option, which allows individuals to front-load contributions. This provision lets you contribute up to five times the annual gift tax exclusion in a single year — $95,000 per beneficiary in 2025 ($90,000 for 2024) — without incurring gift taxes. For married couples, the limits double to $190,000 and $180,000, respectively.

By electing this option, the account owner uses five years’ worth of gift tax exclusions at once, assuming no additional gifts are made to the same beneficiary during that time. This strategy can significantly boost the account’s tax-free growth potential, making it an appealing choice for those able to contribute a larger amount upfront.

State-Imposed Limits

States may also impose a maximum aggregate contribution limit. This typically ranges from around $235,000 to $550,000, depending on the state. This aggregate limit represents the maximum amount that can be contributed to a 529 plan for a single beneficiary. These high contribution limits make 529 plans an attractive option for families who wish to save extensively for education while also leveraging potential estate planning benefits.

Incorporating 529 Plans Into Your Estate Plan

Grandparents managing a 529 plan as part of their estate planning.

Incorporating 529 plans into your estate planning can offer several advantages, particularly for those looking to reduce their taxable estate while providing for future generations. Contributions made to a 529 plan are considered completed gifts to the beneficiary. This means the assets are effectively removed from the account holder’s estate. This can help reduce the overall value of the estate, which may lower potential estate tax liabilities.

While contributions are treated as gifts, the account owner retains control over the assets. This means the owner can change the beneficiary or even take back the funds if necessary. Remember, however, that non-qualified withdrawals may incur taxes and penalties.

Five-Year Superfunding Strategy

The five-year superfunding option is a particularly powerful strategy for estate planning. By front-loading up to the limit of $95,000 per beneficiary in 2025, an individual can make a substantial gift without exceeding the annual gift tax exclusion over a five-year period. For couples, this amount doubles to $190,000 per beneficiary.

This strategy can significantly reduce the size of a taxable estate while accelerating the growth potential of the education fund. By using superfunding, individuals can effectively pass on substantial wealth while also leveraging tax-free compounding over many years.

However, remember that once the five-year election is used, no additional gifts can be made to the same beneficiary during the covered period without potentially triggering gift taxes. Gifts made in excess of the five-year limit during this time count against a person’s lifetime gift tax exemption. The exemption limit is $13.99 million in 2025, up from $13.61 in 2024.

Generation-Skipping Transfer Tax Considerations

Contributions to 529 plans may also help address generation-skipping transfer (GST) tax concerns. Since 529 plans can benefit grandchildren or other younger relatives, these accounts can be an effective way to transfer wealth across multiple generations, potentially minimizing the tax burden associated with larger estates. The ability to change beneficiaries without tax consequences further enhances this flexibility, making it easier to adapt the estate plan as family dynamics and educational needs evolve.

For example, let’s take a grandparent who wants to pay for their grandchild’s education. They contribute $95,000 to a 529 plan for the grandchild using the five-year superfunding strategy. This allows them to transfer a substantial amount of wealth out of their estate without incurring GST taxes while covering future educational costs. If the grandchild decides not to pursue higher education, they can change the beneficiary to another family member. This preserves the account’s value for educational purposes within the family.

State-Level Tax Benefits

Another consideration is the potential impact of state-level estate or gift taxes. Some states may offer additional incentives for contributing to a 529 plan, such as state tax deductions or credits, which can further enhance the overall estate planning strategy. These benefits can vary widely, so it is advisable to consult with a financial advisor or an estate planning attorney to understand the specific rules and tax implications in your state of residence.

Bottom Line

Grandparents making changes to a 529 plan.

A 529 plan can help you save for education and reduce estate taxes. Families could use strategies like five-year super-funding and flexible beneficiary rules to transfer wealth efficiently. These accounts offer tax benefits and support long-term financial planning for educational costs.

Education Planning tips

A financial advisor can help you make the most of your 529 plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Tuition is the main expense covered by a 529 plan, but other related education costs are also included. Here’s what you can use the plan to cover.