For many retirees, leaving a meaningful legacy is about more than transferring financial assets. It is about creating opportunities for the people they love.
Helping a grandchild attend college, learn a trade, or pursue a professional credential can have a significant and lasting impact on that child’s future. A Section 529 plan can help turn that goal into a tax-efficient legacy strategy.
When coordinated with your retirement and estate plans, a 529 plan may allow you to support future generations, maintain control over the funds, and potentially remove assets from your taxable estate.
What Is a Section 529 Plan?
A Section 529 plan, also called a qualified tuition program, is a tax-advantaged account designed to help pay for eligible education expenses. These plans are generally sponsored by states or state agencies.
Contributions are made with after-tax dollars, meaning there is no federal income tax deduction for contributing. However, 529 plans offer two important federal tax benefits:
Investments can grow without annual federal income taxation.
Withdrawals are generally tax-free when used for qualified education expenses.
Unlike giving money directly to a child or grandchild, the person who owns the 529 plan generally retains control over the account. This can be especially valuable for grandparents who want to contribute toward a grandchild’s future while remaining involved in how and when the money is used.
Which Education Expenses Can a 529 Plan Cover?
Although 529 plans are commonly associated with four-year colleges, the funds can support a variety of educational paths.
Qualified expenses may include:
- College and university tuition and required fees
- Books, supplies, computers, and certain technology expenses
- Room and board for students who meet enrollment requirements
- Eligible trade and vocational schools
- Registered apprenticeship programs
- Certain postsecondary credentialing expenses
- Student loan repayments, subject to a $10,000 lifetime limit per individual
- Certain elementary and secondary education expenses
Beginning in 2026, up to $20,000 per beneficiary each year may be used for qualifying K–12 expenses, an increase from the previous $10,000 limit. The expanded rules also allow certain expenses beyond tuition to qualify.
Because federal and state definitions can differ, families should confirm that an expense qualifies before withdrawing funds from a 529 plan.
Why Might a 529 Plan Be Valuable for Grandparents?
A 529 plan can allow grandparents to make an impactful gift while maintaining significant flexibility.
The funds could help a grandchild graduate with less student debt, pursue specialized career training, earn a professional credential, or take another important step toward a successful career.
Grandparents may also appreciate several planning advantages:
- The account owner generally determines when distributions are made.
- The beneficiary can usually be changed to another qualifying family member.
- Contributions may remove assets from the contributor’s taxable estate.
- The account can potentially grow for many years without annual federal income taxation.
- Multiple family members can contribute toward the same education goal.
Viewed this way, a 529 plan can be much more than a college savings account. It can become part of a broader legacy strategy, using wealth accumulated during your lifetime to create meaningful opportunities for the next generation.
Can a 529 Plan Reduce Estate Tax Exposure?
Contributions to a 529 plan are generally treated as completed gifts for federal gift tax purposes, even though the account owner maintains certain control over the funds.
For families with estates that may eventually be subject to federal estate tax, this can create an additional planning opportunity.
A special election allows an individual to contribute up to five years of annual exclusion gifts at once and treat the contribution as though it were made evenly over five years.
With the annual gift tax exclusion at $19,000 in 2026, an individual may be able to contribute as much as $95,000 for one beneficiary using this election. A married couple may potentially contribute as much as $190,000 if the gifts and elections are structured appropriately.
Often referred to as “529 superfunding,” this strategy may help families:
- Move a significant amount out of a potentially taxable estate
- Give education savings additional years to grow
- Fund an important legacy goal earlier in retirement
Additional gifts to the same beneficiary during the five-year period can create gift-tax reporting considerations, so significant 529 contributions should be coordinated with the family’s broader gifting and estate strategy.
What Happens if the Beneficiary Does Not Attend College?
One common concern is what happens if a child or grandchild receives a scholarship, chooses a less expensive school, or decides that a traditional college education is not the right path.
Fortunately, several options may be available:
- Change the beneficiary to another eligible family member.
- Use the funds for an eligible trade school, apprenticeship, or other qualified training.
- Keep the account available for future education.
- Take a nonqualified withdrawal, although taxes and a penalty may apply to the earnings portion.
- Roll eligible funds into a Roth IRA for the beneficiary.
A qualifying 529-to-Roth IRA rollover is subject to several requirements. The 529 account generally must have been open for at least 15 years, annual Roth IRA contribution limits apply, and lifetime 529-to-Roth rollovers are limited to $35,000. Contributions made within the preceding five years, along with the earnings attributable to those contributions, generally are not eligible for the rollover.
These rules can provide families with additional flexibility if education plans change over time.
Conclusion: Turn Education Savings Into an Impactful Legacy
A 529 plan can help you accomplish something deeply meaningful: giving the next generation greater freedom to learn, grow, and build a successful future.
At the same time, it can provide valuable income, gift, and estate tax planning opportunities when incorporated into a broader financial strategy.
However, supporting future generations should not come at the expense of your own financial security. Before making a significant contribution, consider how the decision fits with your retirement income, cash-flow needs, charitable intentions, estate objectives, and other retirement goals.
At WealthPath CPAs & Advisors, we help families evaluate decisions like these as part of a long-term retirement tax strategy. Thoughtful planning can allow you to support the people you love today while continuing to protect your wealth and preserve your legacy for generations to come.
