5 Things About 529 Plans from a Financial Advisor

529 plans are a popular choice for saving for your child's education because they offer tax advantages and flexibility. However, there are several lesser-known aspects of 529 plans that can enhance your saving strategy. Here are five things you might not know about 529 plans:

1. You aren’t limited to the 529 provided in your home state. 

There are numerous plans available nationwide. You can compare them based on factors such as maximum contribution limits, fees, and available tax benefits. Identify your priorities and select a plan that best meets those criteria.

2. You can change beneficiaries or shift funds pretty easily.

529 plans are more flexible than you might think when it comes to beneficiaries. You can change the beneficiary to another family member without incurring taxes or penalties. This feature is particularly useful if one child decides not to attend college, allowing you to use the funds for another child’s education​​. Additionally, you can roll over funds from one 529 plan to another beneficiary’s 529 plan once every 12 months without penalties​​.

3. Qualified education expenses are broader than you think.

Funds from 529 plans can be used for a wide range of educational expenses beyond just tuition. Qualified expenses include room and board, textbooks, computers, and even internet access required for schooling. This flexibility ensures that more of your education costs can be covered using the tax-advantaged savings in your 529 plan​​.

4. The impact on financial aid is minimal.

Many parents worry about how a 529 plan will affect their child’s eligibility for financial aid. While 529 plans are considered parental assets and do impact financial aid calculations, the impact is relatively minor. Typically, only up to 5.64% of the value of a 529 plan is counted towards the expected family contribution (EFC) on the FAFSA. This is much lower than the assessment rate for student-owned assets, which can be as high as 20%​​.

5. You have flexibility with unused funds.

If your child doesn’t use all the funds in their 529 plan, you have several options. As mentioned, you can change the beneficiary to another family member or use the funds for graduate school. Most notably, beginning in 2024, you can also roll over unused 529 plan funds to a Roth IRA for the same beneficiary. This rollover allows you to convert up to $35,000 of 529 plan funds to a Roth IRA over the beneficiary’s lifetime, providing a significant opportunity for tax-advantaged retirement savings​​.

Bottom Line

Knowing more about 529 plans can help you save money for education expenses more effectively. From state tax benefits and flexible use of funds to minimal impact on financial aid, 529 plans offer a variety of features that can be tailored to your family’s needs.

Sources:
https://oechsli.com/my-account/us/library/92704/

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

529 Plan, or "qualified tuition plan," is an investment account that provides tax benefits when the savings are used for qualified education expenses. Withdrawals from a 529 plan account can be taken at any time, for any reason. But, if the money is not used for qualified education expenses, you will incur a 10% penalty and owe taxes on any investment gains.