It's 5.29 (25) Day! Unlocking the Power of 529 Plans for Retirement

It's 5.29 (2025) Day

It's 5/29 Day! Unlocking the Power of 529 Plans for Retirement

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Beyond Retirement: How 529 Plans Become a Strategic Financial Tool for Your Golden Years

As retirement looms, most shift our focus from accumulating wealth to decumulating, preserving, and, perhaps, gifting and leaving a lasting legacy. While ensuring your personal plan and profile are still sound, a growing number of retirees are also looking for smart ways to support future generations. And here’s a secret weapon you might not have considered: the humble 529 Plan.

Often viewed simply as a college savings account for young families, 529 plans hold surprising power for retirees. They’re not just for parents and toddlers anymore! By strategically integrating 529 plans into your broader retirement strategy, you can unlock significant financial advantages while making a tangible difference in the lives of your grandchildren or other loved ones.

Let’s look into why 529 plans deserve a prominent spot in your retirement toolkit, and not buried behind the old rusty tools your uncle left you 7 years ago.

Key Benefits of 529 Plans for Savvy Retirees

1. A Powerhouse of Tax Advantages

For retirees, every tax dollar saved, not just now but throughout retirement, is a dollar kept for your enjoyment or for your legacy. 529 plans can help a lot:

• Tax-Deferred Growth: Just like a traditional retirement account, your contributions grow without being taxed year after year. This allows your investments to compound much faster, building a larger nest egg for education. Even well-managed taxable accounts could easily have 2%-3% in taxable distributions, having the funds in a 529 keeps them out of the retiree's taxable profile.
• Tax-Free Withdrawals for Education: When funds are withdrawn for qualified educational expenses (tuition, fees, room and board, books, computers, and even K-12 private school tuition up to $10,000 annually), those withdrawals are completely tax-free. Imagine the financial joy of your grandkids as you give them a leg up of less debt and more education. That is a powerful gift! (If used for non-qualified expenses, there is a 10% penalty and ordinary income tax on earnings.)
• Contrast with Other Accounts: Unlike taxable brokerage accounts, where you pay taxes on interest and dividends annually, or Traditional IRAs, where every distribution is taxed as ordinary income, 529 plans offer a unique blend of growth and tax-free spending for a specific, meaningful purpose. While Roth IRAs offer tax-free qualified withdrawals, they are still subject to potential “inherited RMDs” for non-spouse beneficiaries under the Secure Act, whereas qualified 529 withdrawals are simply tax-free.
• Possible state tax deduction or credit: Even in retirement, most could use a credit to offset taxes or a deduction to reduce taxable income. And in high-tax states like Minnesota, the savings can add up! Not all states have a tax benefit.

2. A Super Estate Planning Secret

Beyond educational support, 529 plans are exceptional estate planning tools:

• Reduce Your Taxable Estate: Contributions to a 529 plan are considered “completed gifts” to the beneficiary. This means the money, and its future growth, is immediately removed from your taxable estate, potentially reducing future estate tax liability. For those concerned about federal estate tax (currently with a high exemption of $13.99 million per individual in 2025, but potentially set to revert to a lower amount in 2026) or state-specific estate taxes (like Minnesota’s $3 million exemption), this can be a significant benefit. State estate taxes are often overlooked and can be substantial, even for those who consider themselves very middle class.
• Leverage the Annual Gift Tax Exclusion: You can contribute up to $19,000 per beneficiary in 2025 without dipping into your lifetime gift tax exemption. A married couple can contribute up to $38,000 per beneficiary annually. This allows for substantial annual gifts that reduce your estate while providing a future benefit.
• Superfunding: With 529 accounts, you can actually lump 5 years of gifting into one big, beautiful gift. So, you can give $95,000 per beneficiary, or $190,000 per couple for 2025.
• Efficient Wealth Transfer: You’re not just reducing your estate; you’re transferring wealth efficiently to a younger generation, with the added bonus of tax-free growth and tax-free qualified withdrawals. 529 Plans generally do not have to be probated, saving your estate and heirs time, hassle, and money.

3. The “Big One”: Control and Flexibility

This is where 529 plans truly stand out from other gifting strategies:

• You Maintain Control: Unlike outright gifts, where you relinquish control, the account owner (you) maintains control over the 529 account. You decide how the funds are invested within the plan’s options and when distributions are made.
• Flexibility with Beneficiaries: Life happens. If the initially named beneficiary decides not to pursue higher education, or simply doesn’t need all the funds, you have the incredible flexibility to change the beneficiary to another eligible family member (e.g., another grandchild, niece, nephew, or even yourself!). This ensures your generous contribution remains within the family for educational purposes.

4. Cultivating a Culture of Education (and Pride!)

We’ve all seen that twinkle in a grandparent’s eye when they talk about their grandkids’ achievements. Contributing to a 529 plan offers a unique sense of fulfillment that goes beyond a simple cash gift:

• Inspiring Futures: By setting aside funds specifically for education, you’re not just easing a financial burden; you’re actively encouraging higher education pursuits, hard work, and preparation. It fosters a culture that prioritizes learning and achievement, even if college isn’t the ultimate path for every grandchild. It tells the child that you believe in them!
• Immeasurable Pride: There’s a special pride that comes from seeing your grandchildren succeed, knowing you’ve provided the financial foundation for their educational dreams. It’s a gift that resonates deeply and creates lasting bonds.
• Makes it Easy to get the Whole Family Involved: Anyone can contribute to the 529 Plan. This makes it easy for the family to work together to help the kids. Culture comes from family and community working together... on the same page.

Implementing 529 Plans in Your Retirement Planning

Ready to put these benefits into action? Here’s a simple roadmap:

1. Assess Your Own Financial Health First: Before making any significant gifts, ensure your own retirement needs are secure. Your own financial stability is the priority.
2. Identify Your Future Scholars: Determine which grandchildren, great-grandchildren, or other family members you wish to support.
3. Explore Superfunding: Consider the “superfunding” provision, which allows you to contribute a lump sum equal to five years of annual gift tax exclusions at once (up to $95,000 per beneficiary, or $190,000 for a married couple in 2025). This maximizes the power of tax-deferred growth from day one.
4. Monitor and Adjust: Periodically review your 529 plan’s performance and consider adjusting contributions or investment allocations based on market conditions, your financial situation, or your beneficiaries’ evolving educational paths. If a trade school is chosen, a smaller balance may be needed, and less risk has to be taken on.

A Legacy That Learns and Grows

For retirees looking to blend smart financial strategy with meaningful generational support, 529 plans are an incredibly versatile and tax-efficient solution. They offer tax advantages, robust estate planning benefits, unparalleled control, and the deep satisfaction of fostering education within your family.

As with any sophisticated financial tool, it’s always wise to consult with a qualified financial advisor or estate planning attorney. They can help you navigate the nuances of tax laws, understand the specific rules of your chosen 529 plan, and integrate this powerful tool seamlessly into your overall retirement and legacy plan. Start exploring how a 529 plan can help you build a legacy that truly learns and grows.

If you don't have a plan and would like to get one, schedule a Discovery Meeting:

To health and wealth!

Mark Struthers, CFA, CFP®, CRC®, RMA®

For current clients looking for a meeting:

This commentary is provided for general information purposes only, should not be construed as investment, tax, or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable, but is not guaranteed.