How High-Net-Worth Families Can Use 529 Plans to Build Their Legacy
By Andrea Zoeller, CFP®, NSSA®, Wealth Manager and Partner, Merit Financial Advisors
College savings plans, or 529s, are increasingly popular as a tax-free method to fund education expenses. As of the second quarter of last year, there were 17.3 million 529 accounts in the United States, totaling $568 billion. National 529 Day – happening May 29 – is a great way to recognize this important savings trend, and the different ways it can be utilized.
High-net-worth families often use these savings vehicles for legacy planning, working with advisors to go beyond long-term savings. Education planning remains a priority for high-net-worth families, yet higher education costs continue to rise. According to the Education Data Initiative, college tuition has increased 36.8% since 2010, making trade and vocational schools more attractive.
The following strategies can help high-net-worth families effectively fund educational goals with 529 plans.
Evaluate 529 plan options outside your home state to identify the best investment.
Not all states offer 529 plans, but you may contribute to a plan in another state if needed. Comparing plans can significantly affect long-term results.
If your state offers a 529 plan, it is often most effective due to potential state tax benefits. However, plan quality varies, so consider alternatives. Wisconsin, Virginia, and Utah are recognized for high-quality plans, and alongside your advisor, high-net-worth families should evaluate fees, expenses, and investment choices. Understand that state plans continue to change and adapt to rising needs, using federal law as the baseline and toggling various benefits and incentives.
Consider front-loading contributions to your 529 accounts.
High-net-worth families can maximize legacy planning benefits by front-loading, or superfunding, a 529 plan. This means contributing five years’ worth of the annual gift tax exclusion when opening the account. In 2026, married couples may contribute up to $190,000 per beneficiary.
Starting early matters. This strategy enables both efficient estate transfers and provides significant tax advantages across generations, as federal gift taxes do not apply. Consider raising the option with your extended family if you are considering starting, or adding to, your family in the coming years.
Identify all the qualified expenses.
High-net-worth families should consider the myriad ways to make 529 funds work for them. Outside of flat tuition and boarding fees, the list continues to expand. Students can use funds to purchase books, computers, and various technologies they may need to complete courses.
Think beyond traditional higher education, too. Up to $20,000 per year can also be used to fund public, private, or religious school tuition for elementary and high school. Trade and vocational schools are now considered qualified expenses, too. Finally, up to $10,000 can be used for student loan repayment. It helps to double-check before making a withdrawal, as funds used for non-qualified expenses can incur both income tax and a 10% penalty on earnings.
Use 529s as a Retirement Strategy
Federal law has changed over the last few years to offer 529 account holders maximum flexibility and control, including the option to transfer funds from education costs into qualified retirement plans.
Under the SECURE 2.0 Act, beneficiaries may roll over up to $35,000 from unused 529 funds to a Roth IRA without penalties, provided the account has been open for at least 15 years. This supports legacy planning by allowing unused funds to support a beneficiary’s retirement if they do not attend college, and by offering tax savings and flexibility not available with other retirement accounts that require distributions within 10 years after the beneficiary’s death.
Unlike other custodial accounts that transfer automatically when the beneficiary reaches adulthood, 529 plan owners retain ownership and control until they choose to transfer the asset.
Believe in the Power of Compounding
Given the uncertainty in higher education, it is understandable that families may be unsure how much to set aside. However, as with retirement accounts, high-net-worth families should leverage compound interest and begin saving early, even if the final goal is not yet clear.
If you’d like help understanding how to better optimize your 529 savings plan strategy, Merit Financial Advisors offers complimentary consultations to help bring clarity and structure to your financial life. Let’s start the conversation today.