California’s 529 Plans

Many times I am asked by clients for some things they can do to save for their children’s college that are also make sense financially.  College 529 plans (529 is the Internal Revenue Code section which authorizes them) are one such planning vehicle.  They became a very viable planning tool with the passage of the Bush Tax Act in 2001.


Essentially a 529 plan is a plan sponsored by a state in which someone saving for college invests in various investment options.  Money from a 529 plan is to be used for tuition, fees, supplies and books.  The money can also be used for room and board provided that the student is at least half time.  As long as the money is used for the above, the gains will not be taxed.

The major advantages of the 529 Plans are that the donor retains control of the account; it is an easy way to save for college; the principal grows tax deferred and distributions for college costs are exempt from tax.  Also, it is a way to get assets outside of your estate while continuing to have the ability to utilize the assets, subject to a penalty, if the need arises.

An Estate Planning lawyer does more than prepare Trusts and Wills.  Often we are able to suggest things that are helpful to our clients right now!