23 Mar Can an irrevocable trust own a 529 plan?
Q. Can a 529 plan owned by a grandmother be placed in an irrevocable trust?
A. 529 plans are effective planning tools to pay for the ever-increasing costs of college.
Here’s how this would work.
All 529s must have an owner and a beneficiary, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.
Typically, he said, it is a parent or grandparent who will be the owner of the account, with the child or grandchild being the beneficiary.
The owner decides on the amount to contribute, the plan to be used — as there are a wide variety from which to choose — how the amount invested is to be allocated and when funds get disbursed, he said.
Also, the owner has the ability to change the named beneficiary, as long as it is within the guidelines established by the IRS, Karu said.
“A significant part of both estate and college planning lies with the use of trusts,” Karu said.
“Trusts are allowed to own 529 plans,” he said “Taxes on trust income are calculated in the same manner as other income taxes with the use of marginal tax brackets.”
The one major difference is that trusts reach the highest tax bracket very quickly, he said.
“Since that is the case, investing trust assets in a 529 plan, which grows tax-exempt and can be withdrawn tax-exempt, has potentially significant tax savings,” he said.
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This story was originally published on March 23, 2023.
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