Rhode Island is one of the minority of states that has an estate tax. That means high-value estates may be subject to this state estate tax in addition to the federal estate tax.
The threshold increases each year. The estates of those who pass away this year have a threshold of $1,774,583. That means anything over that amount is subject to taxation before inheritances can be passed on to beneficiaries.
One of the advantages of careful estate planning is that you can use a variety of strategies to avoid having any of your estate go to taxes – or at least minimize the amount. This lets you leave more for your loved ones and other beneficiaries.
One method of taking assets out of your estate and still ensuring that they go to your loved ones involves investing in a 529 education savings plan for a child in your family.
How does a 529 plan work?
A 529 plan (named for the Internal Revenue Code that addresses these accounts) is a tax-advantaged account. The earnings on it aren’t taxable, nor are distributions (withdrawals) as long as the funds are used for one of the designated purposes.
These include not just college tuition, but K-12 tuition, vocational and trade schools, apprenticeships and even student loans. Rhode Island has multiple 529 choices, but so do other states. Rhode Island residents are not limited to our state’s plans.
If you open one of these accounts, you are listed as the owner, while the designated child (which you’re able to change if you choose) is the beneficiary. That means you have control over the funds while you’re alive.
Opening one or more 529 accounts as part of your estate planning isn’t just one way to reduce your taxable estate. It lets you leave assets that are designated specifically for educational or vocational fees to show what you value and what you envision for their future.
This is just one tool that you can use to reduce or eliminate the taxes due on your estate after you’re gone. With sound legal guidance, you can consider others that may also be right for you and your family.