Saving for college is one of the most daunting financial tasks a family can face, taking as much commitment and careful planning as arranging your estate.

But there’s a powerful tool that lets you both put aside money for your family members’ educations and reduce your estate’s exposure to taxes. The 529 plan, named after the section of the Internal Revenue Code authorizing it, lets you remove wealth from your estate while you steadily accumulate assets to help educate children, grandchildren, nieces, nephews — and even yourself if you’re planning to go back to college (see update at bottom for more benefits of 529 plans as of 2018).

These accounts are particularly useful for grandparents looking for ways to limit the tax hit on a lifetime of assets. You can set up accounts for several grandchildren and reap the same rewards from each account.

There are big tax advantages to 529 college savings accounts. Briefly, these state-sponsored accounts are allowed to accumulate earnings free of any federal income tax (usually free of state income tax too). Then, when the account beneficiary reaches college age, tax-free withdrawals can be taken to pay for the beneficiary’s qualified college expenses. While 529 accounts are usually set up for children and grandchildren, no family relationship is required. You can set up an account for any college-bound student you want to help.

Section 529 plans accept large lump-sum contributions (over $200,000 in most cases). Smaller installment pay-ins are also accepted. However, there’s an estate tax advantage to making relatively large lump-sum contributions. This article will explain how it works.

The Estate Tax Advantage

Contributions to a 529 account reduce your taxable estate.

For federal gift tax purposes, the contributions are treated as completed gifts eligible for the annual gift tax exclusion $15,000 in 2018 (up from $14,000 in 2017). Even better, you can elect to spread a lump-sum contribution over five years and thereby immediately benefit from five years’ worth of annual federal gift tax exclusions. You make the election on the federal gift tax return.

For instance, a single grandparent can make a lump-sum contribution of up to $75,000 in 2018 (5 times $15,000) to a 529 account set up for a grandchild. A married set of grandparents can jointly contribute up to $150,000 ($75,000 times 2). If you have several grandchildren, you do this for as many of them as you wish. Gifts up to these amounts won’t reduce your $11.18 million federal gift tax exemption for 2018 if you elect to take advantage of the five-year spread privilege (up from $5.49 million in 2017). Your $11.18 million federal estate tax exemption is also untouched.

However, if you die during the five-year spread period, a pro-rata portion of the contribution is added back to your estate for federal estate tax purposes.

Example: You and your spouse have three young grandchildren. Together you can immediately contribute up to $450,000 to 529 accounts with no adverse federal gift or estate tax consequences ($150,000 to three separate accounts, one for each grandchild). Assuming you live at least five years after making the gifts (the period over which the gifts are deemed to be spread), your taxable estates are reduced by a combined $450,000 ($225,000 each).

In addition, you avoid income and estate taxes on future earnings that would otherwise accumulate from the $450,000 contributed to the 529 accounts. In contrast, what if taxable college savings accounts were set up for the three grandchildren in the names of you and your spouse? In this case, the federal income tax hit on the earnings could be as high as 37%, plus state income taxes, plus possible estate taxes if you and your spouse die before all the money gets spent on the grandchildren’s college costs.

Key Point: Contributions covered by the annual gift tax exclusion (including under the five-year spread privilege) are also excluded for generation-skipping transfer tax purposes.

Accounts Are Flexible Too

When funding an account for a grandchild’s college education, you should always be concerned about what will happen to your money if things don’t turn out as expected. After all, your grandchild could decide to become a professional tattoo artist instead of going to college. If that happens, 529 accounts give you good flexibility.

First, the Internal Revenue Code allows you to change account beneficiaries without any federal tax consequences — as long as the new beneficiary is a member of the original beneficiary’s family and in the same generation (or a higher generation). For this purpose, an account beneficiary’s first cousin is considered a same-generation family member. That means a grandparent can move money from an account originally set for one grandchild into an account set up for any other grandchild with no federal income tax, gift tax, or generation-skipping transfer tax consequences.

Finally, what happens if you simply need to get your money back from the 529 account? The federal tax rules permit that too. You’ll be taxed on any withdrawn earnings and be charged a 10% penalty on any withdrawn earnings. Frankly, that’s an acceptable price for being allowed to recover your money.

UPDATE! The Tax Cuts and Jobs Act leaves all of the existing education-related tax breaks in place. It also allows you to take tax-free distributions of up to $10,000 per year from a Section 529 plan to cover tuition at a public, private, or religious elementary or secondary school, starting in 2018.