Do you have kids or grandkids? Planning to have kids? This week's Mezzi Boost is for you. Today we discuss how the 529 plan isn't just about your kids, but has the potential to fuel generational wealth.
🧠 What you need to know
If you have kids, you probably already know that a 529 plan is a tax-advantaged savings plan where earnings grow tax-deferred and withdrawals for qualified education expenses are tax-free. However, there are three other significant benefits to consider.
Three 529 benefits
Passing 529 plans to future generations
Let's say your child doesn't end up using everything in their 529 plan, which is funded by grandparents and you. Fast forward to when they become an adult and have kids of their own. They can change the beneficiary on their 529 plan to their own child. This way, you're hypothetically funding your grandchildren's education. Given the power of compound interest, these savings can grow tax-free for future generations.
Converting a 529 plan to a Roth IRA
Recent legislative changes have made it possible to convert unused 529 plan funds into a Roth IRA. In other words, your child (or other beneficiary) can convert the 529 to a retirement account, as long as:
1. It has been open for at least 15 years
2. You convert $35,000 or less
3. You cannot convert funds contributed less than five years prior to the conversation. For example, contributions made in 2024 can be converted starting in 2029.
Exemption from estate taxes
What is estate tax? It's a tax on the transfer of assets after death. A significant advantage of a 529 account is its exemption from federal estate tax, meaning the amount saved in a 529 does not count toward your taxable estate.
The federal estate tax already has a high limit—almost $13M. You may think that number is far out of reach for you, but it may be a long-term possibility. Consider this: If you have $1M of investments today, with an annual return of 5.26% and assuming no additional contributions, they could grow to $13M in 50 years. As reference, the S&P 500 averaged 11.5% returns over the past 50 years.
More to come
Over the next few weeks, we will be covering topics that help you plan and build wealth across generations. Last week we discussed inheriting an IRA.
🤝 How can Mezzi help?
Mezzi is here to help you and your family build generational wealth.
Understand your family’s assets with your family members.
Are you going to benefit from inheritance? Are you going to pass down wealth to your kids? Mezzi can help you safely share your assets and collaborate with family members to get on the same page.
What’s yours and what’s for your kids?
Mezzi’s Account Tags help you analyze each family member’s assets as one portfolio. If you have a custodian account and 529 plan for one child, tag them and view them together as one portfolio. If you have two children, tags can help you understand each of their respective assets.
Are assets for the next generation invested appropriately?
Use Mezzi’s performance and allocation comparisons to determine if you’ve properly invested 529 plan assets.
How else can we help you build wealth? Reply to this email and let us know.
