Did you know 529s are powerful estate planning tools?

These versatile savings accounts might be the estate planning vehicle you need to learn about.

Most of us associate 529 accounts as college savings vehicles. They’re flexible, allowing you to transfer assets to anyone, including yourself, for the express purpose of furthering the education of your beneficiary. But did you know that a 529 can be a powerful estate planning tool, too?

Modern estate planning
Not everyone is in a position to set aside money for the next generation without jeopardizing their own goals, but if you’re fortunate enough to do so, it’s worth looking into your options.
Specialized savings accounts, informally referred to as 529s, could be at the top of your list. They have quite a few advantages for the beneficiaries – but there are benefits for the donors too, given the high maximum contribution limits and tax advantages.

The special tax rules that govern these accounts allow you to pare down your taxable estate, potentially minimizing future federal gift and estate taxes. Right now, the lifetime exclusion is $13.61 million per person, so most of us don’t have to worry about our estates exceeding that limit.

The framework
Under the rules that uniquely govern 529s, you can make a lump-sum contribution to a 529 plan up to five times the annual limit of $18,000. That means you can gift $90,000 per recipient ($180,000 for married couples) as long as you denote your five-year gift on your federal tax return and do not make any more gifts to the same recipient during that five-year period. However, you can elect to give another lump sum after those five years are up. In the meantime, your investments have the luxury of time to compound and potentially grow.

So, if you’re following along, that $180,000 gift per beneficiary won’t incur gift tax as long as you and your spouse follow the rules. You’ll also whittle your taxable estate by that same amount, potentially reducing future estate tax liabilities. That’s because contributions to 529s are considered a completed gift from the donor to the beneficiary.

Other benefits
Many people worry that gifting large chunks of money to a 529 means they’ll irrevocably give up control of those assets. However, 529s allow you quite a bit of control, especially if you title the account in your name. At any point, you can get your money back. Of course, that means it becomes part of your taxable estate again subject to your nominal federal tax rate, and you’ll have to pay an additional 10% penalty on the earnings portion of the withdrawal if you don’t use the money for your designated beneficiary’s qualified education expenses.

If your chosen beneficiary receives a scholarship or financial aid, they may not need some or all of the money you’ve stashed away in a 529. So you’ve got options here, too.

• You can earmark the money for other types of education, like graduate school.
• You can change the beneficiary to another member of the family (ideally in the same generation), as many times as you like, since most 529s have no time limits. This option is particularly helpful if your original beneficiary chooses not to go to college at all.
• You can take the money and pay the taxes on any gains. Normally, you’d expect to pay a penalty on the earnings, too. But that’s not the case for scholarships. The penalty is waived on amounts equal to the scholarship as long as they’re withdrawn the same year the scholarship is received, effectively turning your tax-free 529 into a tax-deferred investment. Of course, you can always use the funds to pay for other qualified education expenses, like room and board, books and supplies, too.
• Starting in 2024, funds in a 529 plan can be rolled into a Roth IRA for the beneficiary if the 529 plan account meets certain requirements. Consult with a tax professional about this option and whether the 529 plan account is qualified for this rollover option.
  Plus, many plans offer you several investment choices, including diversified portfolios allocated among stocks, bonds, mutual funds, CDs and money market instruments, as well as age-based portfolios that are more growth-oriented for younger beneficiaries and less aggressive for those nearing college age.

Bottom line
Saving for college takes discipline, as does estate planning. Talk to your professional advisor about the nuances of different investment strategies and vehicles before making a years-long commitment.

Sources: Mercer; Broadridge/Forefield

Earnings in 529 plans are not subject to federal tax and in most cases state tax, as long as you use withdrawals for eligible college expenses, such as tuition and room and board. However, if you withdraw money from a 529 plan and do not use it on an eligible higher education expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. An investor should consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. You should contact your tax advisor concerning your particular situation. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Charitably minded investors can satisfy RMDs with QCDs

Qualified charitable distributions allow your required IRA distributions to benefit a worthy cause – while you benefit from a reduced tax liability.

Helping others when you’re gone is a noble and rewarding aspiration. But think how much more rewarding it could be, both personally and charitably, to help others while you’re still here.

Giving during your lifetime can take many forms, one of which is using qualified charitable distributions (QCDs). It’s an option that can also reduce your tax liability, as it involves donating pre-tax dollars before they become taxable income as a required minimum distribution (RMD).

Here’s how it works.

Transform RMDs into QCDs
Philanthropy is often reward enough, but charity and tax deductions seemingly go hand in hand. As the standard deduction has risen to $13,850 for individuals in 2023 (double for married filing jointly), you may want to consider giving strategies that don’t require itemizing on your tax return. A QCD is a great way to carry out your charitable intent that doesn’t require itemizing and also reduces your taxable income.

The required start age to begin taking distributions from your IRA has increased over the past few years from 70 1/2 to 73. However, the age that you can begin QCDs is still 70 1/2. These RMDs are generally treated as taxable income. Thankfully, the Protecting American from Tax Hikes (PATH) Act of 2015 permanently allowed an IRA owner to make qualified charitable distributions of up to $100,000 directly from their IRA to a charity without getting taxed on the distribution. Basically, you can satisfy your RMD amount without reporting additional income.

There is, however, another important benefit. When a QCD is used to satisfy an RMD, that amount is also excluded from tax formulas that could impact multiple categories such as Social Security taxation, Medicare Part B and D premiums, and the Medicare tax on investment income.

Rules to follow
You must be eligible. You must be age 70 1/2 or older at the time of the QCD (but remember, RMDs now begin at age 73). QCDs from Ongoing SEPs and SIMPLE IRAs are not permitted.

There is an annual limit. Your QCD cannot exceed $100,000 per tax year, even if your RMD is greater than $100,000. New legislation, the SECURE Act 2.0, indexes this $100,000 limit for inflation now in 2024.

Only qualified organizations count. The IRA trustee or custodian must make the distribution directly to a qualifying charity (private foundations and donor advised funds are not eligible). For instance, you cannot take the distribution yourself then write a check to the charity.

RMDs: A real-time legacy
By donating the RMD to a qualified charity, you can enjoy the satisfaction of knowing you are helping a worthy cause while simultaneously reducing your taxable income. This strategy also helps you live out your values in real time, effectively living your legacy in the here and now.

To learn more, seek guidance from your financial and tax advisors. They’re a good source of information when it comes to living and giving generously.

Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

From the Desk of Dale Crossley and Evan Shear

We hope that you and your loved ones are doing well. It doesn’t seem that long ago that we were discussing how the markets may possibly be impacted during a presidential election year. It was a concern among investors in 2020 and once again, we’re having conversations with our clients. So, we thought you might find some additional information helpful.

As you know, many things can affect the stock market and, as a result, your financial portfolio. With a long-term plan in place, you may assume that you are ideally positioned to weather any challenges that may come your way. However, in the midst of an election year, many people grow uncertain. They start reevaluating their portfolios and considering how they may perform in the coming year. Will the 2024 presidential election affect your portfolio?

"Presidential Election Cycle Theory"

Presidential election cycle theory notes trends in the stock market based on the presidential election cycle. The cycle lays out the strongest years in the stock market based on the presidential election cycle. Year three of the president's term is often the strongest year on the market. Then, year four is the second strongest.
On the other hand, the first year of a president's term is often the weakest year of his term regarding the stock market. This can have significant implications for investors. Utilizing the presidential election cycle theory, investors might change their entire strategy. They might choose to purchase investments late in the year of the second year of a presidential term and then sell them late in the fourth year.

What History Tells Us

Historically, many things have the potential to impact the stock market. These factors include the current president and his economic and financial policies. There are some historical trends in the stock market based on specific stages of the presidential term cycle. But that theory does not always hold up. Also, worries about the presidential election cycle and its impact on the stock market are often overblown.

Take, for example, the last two presidents and how the stock market has performed during their terms. During Obama's presidency, the first two terms were more profitable than the third year. Trump saw a significant increase in profitability during his third year. But the fourth year, and the pandemic and other serious concerns, caused a highly volatile market that saw a decrease in the value of many investments.

Following the presidential election cycle theory can provide potential insight into investments, including a possible investment strategy and plan. However, based on a historical view, it does not necessarily follow that the upcoming election will substantially impact the stock market—regardless of who might win that election. Historic insights also indicate that the market can change dramatically based on conditions completely unrelated to election cycles. A long-term financial plan is the best way to weather the inevitable ups and downs in the market.

Should You Stay the Course?

As you try to decide what to do about your investments, many investors are considering whether they should sell assets late in 2024, before the new president takes office. However, a long-term investment strategy—one that allows for short-term shifts in the market—can be more effective than selling off investments as a reaction to the changing economic conditions anticipated after a presidential election.

In order to create an effective investment strategy, our advisors at CrossleyShear Wealth Management focus on the long-term value of your investments. You may be planning for a child's college fund, a significant purchase, or your retirement years. You might even want a long-term plan to provide generational wealth.

In all of those cases, the value of your investments will likely withstand the changes in the market. A long-term investment strategy that seeks to maximize value and return over time can be much more effective than pulling out of those investments in anticipation of a potentially difficult year.

By judging the market over time rather than on the basis of short-term economic changes, investors can develop a deeper understanding of options. You can also learn how you can help protect your investments. If you want have questions about your financial plan, please don’t hesitate to reach out. That’s why we’re here.

Any opinions are those of CrossleyShear Wealth Management and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All opinions are as of this date and are subject to change without notice. Past performance is not a guarantee of future results.