Expand your practice with 529 education savings plans

For many financial professionals, education savings represent an untapped practice-building opportunity. Learn how successful financial professionals cultivate client interest, build a bigger client base and increase assets under management.

Step 1

Consider the ways that helping clients with education savings strategies can also benefit your practice.

Advisor benefits can include:

• Deeper client relationships. Investors consistently rank education and college savings as one of their most important objectives. Addressing this and other investment needs can help you fulfill client expectations for more comprehensive, personalized planning.
  
  
• Sizable investments. Financial professionals often think 529 savings plans only involve small account balances, but in reality high contribution limits coupled with tax benefits may make 529 plans a potentially attractive estate-planning vehicle for high-net-worth clients, such as grandparents. (Tax-advantaged treatment applies to savings used for qualified education expenses. State tax treatment varies.)
  
  
• Administrative ease. Options such as age-based target date funds and payroll deduction for employer-sponsored plans help clear administrative and logistical hurdles so it’s easy to set up new accounts.

Step 2

Lay out your strategy for growing your 529 business.
 

• Make 529 part of your routine. Discuss college planning with all new clients and integrate college savings and/or gifting into your year-end tax discussions.
  
  
• Engage emotions. Explain to clients how getting started early and reducing the student-loan burden can make a huge difference in the lives of their children or grandchildren. Qualified education expenses can include student loan payments (principal or interest, and up to a $10,000 lifetime maximum). This applies to the designated beneficiary or the beneficiary’s siblings.
  
  
• Tie in education savings with holiday gifting. As holidays approach, suggest that clients contribute a meaningful gift to a loved one’s 529 savings account. Also, May 29 (5/29) is National 529 College Savings Day! Celebrate with an event on the importance of setting aside money for higher education.
  
  
• Bring the conversation outside the office. Give clients a college savings piggy bank after the birth of a child or grandchild. Suggest they earmark all deposits for a 529 account.
  
  
• Meet with receptive audiences. Attend a PTA meeting or back-to-school event to provide informational material to parents, school board members and educational professionals.
  
  
• Build a network. Create a network of CPAs and estate attorneys to cover the full spectrum of 529 issues, including tax benefits and student loans. Also consider holding education planning client events for people in similar age groups (new parents, empty nesters/grandparents, estate planners).

Step 3

Reach multigenerational prospects and promote the estate-planning benefits of 529 plans.

Make college savings a family affair by reaching out to grandparents and other family members to contribute. Explain how they may also be able to take advantage of estate planning benefits associated with 529 savings plans:
 

• High gifting limits can help put money to work. Investments have the most potential to benefit the beneficiary when they have the longest possible investment timeframe. Thanks to the high gift tax exclusions of a 529 plan , contributors are able to put sizable assets to work.
  
  
• Tax-free wealth transfers remove the tax burden — not the control. Contribution limits differ from plan to plan. (For instance, the limit for the CollegeAmerica 529 savings plan has been increased to $550,000.)
  
  There are three ways clients can fund a 529 plan and avoid gift-tax consequences. First, they can use the annual gift tax exclusion of up to $18,000 a year ($36,000 if they're married) per beneficiary.  Under a special gift tax election, clients can also make a lump-sum contribution of up to $90,000 ($180,000 if married) and elect to spread the gift evenly over five years with no federal gift tax consequences (assuming no other gifts are made to the same beneficiary during the five-year period). If the donor of an accelerated gift dies within the five-year period, a portion of the transferred amount will be included in the donor's estate for tax purposes. Tell clients to consult with a tax advisor regarding their specific situations.
  
  The second way  to fund a 529 plan and avoid gift tax consequences is by using the lifetime exemption amount. Clients can fund their contributions with gifts that apply against their unused lifetime exemption amount from the estate and gift tax. The lifetime exemption amount is currently $12.06 million per individual, but this amount is scheduled to be reduced substantially at the end of 2025.
  
  The third option is to use a combination of annual exclusion gifts and gifts against the lifetime exemption amount. Clients can fund a portion of their 529 contributions with annual exclusion gifts, with the remainder coming from gifts that apply against their lifetime exemption from the estate and gift tax.
  
  
• There’s no limit on the number of beneficiaries. The number of beneficiaries for whom they can make gifts is unlimited. Eligible contributions are deducted from their estate, but the account owner retains control of the assets as well as the withdrawals.

If withdrawals from 529 plans are used for purposes other than qualified education expenses, the earnings will be subject to 10% penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states. Please consult your tax advisor for state-specific details.

Step 4

Connect businesses with employer-sponsored 529 plans
 

• Prospect local businesses. Find local small-business owners through small-business directories, local chambers of commerce, and business license applications, or just drive around town.
  
  
• Identify companies that are potential 529 clients.
  • Consider small- and medium-sized companies, which are often overlooked but represent a meaningful opportunity. The automatic contributions for multiple employees can add up quickly.
    
    
• Explain how 529 savings plans can be a win-win to employers and employees
  • No setup costs. There are no account setup or maintenance costs incurred.
  • Minimal administration. Employees manage their accounts directly with your plan's financial professional.
  • No minimum participation. While widespread employee participation is welcome, a single shareholder is enough.
  • No upfront sales charge for participants and low ongoing expenses with 529-E shares (available only in employer-sponsored programs).
    

Resources to use:
How to set up an employer-sponsored 529 plan