Multigenerational wealth transferred through superfunding the 529 account.
Trusts pay significant tax on regular income. In 2026, rates rapidly reach 37% plus 3.8% federal net investment income tax if earnings are more than $16,000 per year. 529 plan interest grows tax free for education and can be disbursed without the 3.8% tax. There may be a 10% penalty on earnings. 529 accounts are considered outside a taxable estate (1997 Congress claimed 529 accounts were a completed “gift” to the beneficiary at death).
The successor/owner of the 529 account may be transferred to a Living Trust (at death called an irrevocable trust) or LLC. The account is then administered by the Trustee, but still not included in estate figures.
A grandparent/owner may transfer ownership while living without penalty to avoid having to administer.
Nigel puts a portion of his wealth into his trust, but also superfunds his children’s 529 accounts. Taxes on the trust earnings are up to 40.8% federal plus 4.25% state. Taxes on the 529 accounts’ growth are $0 for any qualified expenses, over 45% difference! Even for non-qualified withdrawals, taxes could be near 12% federal plus 4.25% state plus 10% penalty. This still represents nearly 19% difference (45.05% vs 26.25%).
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