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Military Finances 301: 529 Plans - A Powerful Tool for Building Generational Wealth Thumbnail

Military Finances 301: 529 Plans - A Powerful Tool for Building Generational Wealth

College Planning Managing Your Finances

As a military family, you're no stranger to planning for the future. But have you considered how a 529 plan could be your secret weapon for building generational wealth? Let's dive into why these education savings accounts are more versatile than you might think, especially for those of us in uniform.

Overview: More Than Just a College Savings Account

You've probably heard of 529 plans as a way to save for your kids' college education. But these plans have evolved into a sophisticated tool for wealth transfer and tax management. With recent changes in legislation, they've become even more flexible.

Eric Roberge, a CFP and Forbes contributor, puts it well: "529 plans offer tax advantages which are important. But there are other considerations to work through to determine if a 529 plan is the best account to use for your family's specific goals."

Strategies for Maximizing Your 529 Plan

1. State Flexibility for Military Families

As military families, we're often on the move. The good news? Many states allow you to open a 529 plan regardless of your residency. This means you can shop around for the best plan, not just the one offered by your current state of residence. Keep in mind, though, that you'll need to verify if you can get a state income tax deduction for contributions to an out-of-state plan.

2. Superfunding for Rapid Growth

 Want to kickstart your 529 plan? Consider "superfunding." This strategy allows you to contribute up to five years' worth of gift tax exclusions in one go. For 2024, that's $85,000 per individual or $170,000 for married couples. This can give your investment a serious boost right from the start.

3. Beneficiary Flexibility

One of the most powerful features of 529 plans is the ability to change beneficiaries. If one child doesn't use all the funds, you can transfer the balance to another family member – even to a future grandchild. This flexibility makes 529 plans an excellent tool for creating an "education endowment" for your family.

4. Estate Planning Benefits

529 plans can be a smart way to reduce your taxable estate. Contributions are considered completed gifts, removing those assets from your estate, but you still maintain control of the funds. It's a win-win situation for estate planning purposes.

New Options Under the SECURE 2.0 Act

While the new Roth IRA rollover option has gotten a lot of attention, it comes with significant restrictions. Instead, let's focus on the expanded uses for 529 funds that don't involve rollovers:

- Up to $10,000 can be used to pay student loans.

- Up to $10,000 per year can go towards K-12 education expenses.

- Funds can be used for apprenticeship programs.

These changes make 529 plans more versatile than ever, allowing you to support your family's education at various stages.

Strategies to Consider:

1. Start Early: The power of compound interest is your friend. The earlier you start a 529 plan, the more time your money has to grow tax-free.

2. Multiple Accounts: If you have a large estate, opening multiple 529 plans for different family members can be an effective way to reduce your taxable estate.  It will also help you avoid the problem of reaching the maximum account balance (varies by state) in a 529 too fast.

3. Stay Informed: Tax laws and 529 plan rules can change. Make it a habit to review your strategy annually with a financial advisor who understands the unique aspects of military finances.

4. Balance with Other Savings: While 529 plans are powerful, they shouldn't be your only savings vehicle. Balance them with other retirement and investment accounts for a well-rounded financial strategy.

Military Finances are Different

As service members, we face unique financial challenges and opportunities. 529 plans offer a flexible way to save for education expenses while also providing estate planning benefits. The ability to open plans in different states can be particularly advantageous for military families who move frequently. Remember, building generational wealth isn't just about the money – it's about creating opportunities for your family's future. A well-funded 529 plan can provide those opportunities, whether it's for college, vocational training, or even as a tax-efficient wealth transfer tool.

Want to learn more about how 529 plans can fit into your overall financial strategy? Use the button below to schedule a free initial consultation. We'll help you navigate the complexities of military finances and create a plan that secures your family's educational future.

If you found this article useful, you might like the following blog posts:

GI Bill. 529 Funds. Which Should I Use First?


What Can You Buy With 529 Distributions?


Retired Military Finances 301: Generational Wealth


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