If you’re an American living in Singapore, you might want to consider using what’s known as the 529 College Savings Plans for your estate planning. Daniel Weiss from Avrio Wealth talks us through how it could work for you.
What are 529 Plans?
529 Plans are state-administered, tax-advantaged savings vehicles used for education. You can utilise them for estate planning to pass assets to descendants, support the value of education among multiple generations, and lower taxes each year and upon death.
Contributions to 529 Plans are made with after-tax dollars. Funds can be invested, and annual dividends, interest and capitals gains are not taxed. Distributions for qualified education expenses are also tax-free.
Qualified expenses include university tuition and fees, books and supplies, housing and meal plans, computers and equipment for school, and up to $10,000 a year tuition for elementary and secondary school. Health insurance, travel and sports-activity fees count as unqualified expenses.
How can you use them?
There are over 6,000 colleges and univerisities that qualify for 529 Plans, including more than 400 outside the US; these include Cambridge and Oxford in the UK, and also the University of Melbourne in Australia.
Each 529 Plan has one beneficiary (typically a child). Contributions are considered gifts and removed from your taxable estate. This is especially appealing for those who will likely have an estate tax issue. The current estate tax exemption is around $12 million per person, but in 2026 this reverts to around $6 million per person. Considering federal estate tax is as high as 40%, this can amount to a large sum.
How can they affect estate tax?
With proper planning, you can mitigate estate tax and utilise your hard-earned assets in a way that reflects your values and goals. In 2022, an American can gift $16,000 per beneficiary annually without it affecting their lifetime gift tax exemption.
Example 1
James and Angelina are US taxpayers with three children. They can contribute $32k per year to each child’s 529 Plan (total $96k a year) with no gift tax implications. Therefore, over 10 years, they can remove $960k from their taxable estate, excluding investment growth!
You can also Superfund (that is, make five years of contributions upfront), allowing a large one-time removal from your estate.
Example 2
Rob and Christine are Americans abroad who have two children. Rob’s $750k of Google RSUs just vested. They can contribute $160k to each child’s 529 Plan this year (total $320k) with no effect on lifetime gift tax exemption.
What are the options for “overfunded” accounts?
If you have leftover money in your 529 Plan, you can:
- use the balance for the child’s graduate school;
- change the beneficiary to another child and use it for their education;
- let it grow tax-free and change the beneficiary to future grandchild; or
- withdraw funds for personal use (though you’ll pay tax on earnings and incur a 10% penalty)
Find out more
529 Plans are a tool that can support your family’s education over generations and lower estate tax liability. Planning is essential for financial success. As Howard Ruff said, “It wasn’t raining when Noah built the ark.”
For more information on 529 Plans and how they can support your wealth journey, reach out to Daniel at Avrio Wealth:
Daniel Weiss, EA | 9852 9599 | dweiss@avriowealth.com
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Avrio Wealth Pte Ltd
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