How Rich Families Pay for College Using ‘Dynasty’ 529 Plans

As a kind of apology for all of this, President Biden wants to lop up to $20,000 off the federal student loan balances of people who earn no more than $125,000 a year ($250,000 if you’re married). Eyebrows up at the break for this six-figure crew, certainly.

To beat back skepticism, the White House proposed to limit the $20,000 offer to people who started college with very little — those who, back when they were students, qualified for federal Pell Grants for people from low-income families. Everyone else would get up to $10,000 of relief.

The White House also noted that nearly one-third of the debtors now eligible for relief did not finish school and are burdened with the debt but not the degree that would probably have made loan payments more affordable. Overall, close to 90 percent of the deleted debt dollars were supposed to go to people earning less than $75,000 a year.

Most people with five-figure incomes have trouble saving a lot of money for college in 529 plans, which allow users to invest money in stock funds that can outrun tuition inflation over time. Tax breaks that come with the accounts — whether they are state income tax deductions for deposits or the avoidance of federal taxes upon withdrawal — are often more valuable to people with the highest incomes.

Now, enter those Dynasty 529 plans. Two years ago, an accountant and financial planner named Jeffrey Levine — beloved on tax Twitter for his lengthy, in-the-moment dissections of complicated legislation — wrote a kind of treatise on the topic on the website kitces.com.

In a somewhat bemused, can-you-believe-this-is-real tone that ran over 6,000 words, he outlined the possibilities. In short, wealthy individuals can front-load large 529 deposits in such a way that the accounts can pay for several college educations decades from now and still have money left over for other family members pursuing higher education in future generations. It’s all legal, and if you jump through a few modest hoops, it’s generally tax-free.

In fact, Mr. Levine spreadsheeted a jaw-dropping situation where two aspiring grandparents each invest $15,000 a year and let the money grow for 35 years. In that time, they could pay full tuition for four potential grandchildren, assuming a $30,000 annual bill today that would grow at a 5 percent annual rate.