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529 plans are a tax-advantaged accounts that were designed to encourage saving for education. Initially only for higher education, but currently for K-12 tuition as well.  Money invested in these accounts grows tax-free. That is the major benefit. 

States created Section 529 plan more than 25 years ago and the plans have succeeded in motivating saving for education expenses. In 2013 only 2.5 percent of families had 529 accounts*. As of July 2024, the total amount saved in 529 Plans is over 500 billion dollars. **
A huge increase.

The funds from a 529 plan are used for qualified education expenses. These expenses are typically tuition, fees, textbooks, computers, and equipment and are charged to the student in relation to attending an institution. Room and board are also considered eligible expenses for both on-campus and off-campus housing. (there are some rules to look at for housing).

Qualified education expenses formerly did not include student loans and student loan interest. additionally, on December 12, 2019, the SECURE Act was signed into law, which allows for 529 withdrawals for "principal or interest on any qualified education loan", under certain conditions:*** 

  • No more than $10,000 may be withdrawn for the purposes of paying a student loan. 
  • The $10,000 limit is a maximum lifetime limit per beneficiary and sibling.

What happens if there are funds in the accounts after all the above expenses are paid and schooling is done? A distribution from a 529 plan that is not used for the above-qualified educational expenses is subject to income tax and an additional 10% early-distribution penalty on the earnings portion of the distribution.  All that tax savings is gone. 

Now there is an option with a change from the Secure Act 2.0. Families may be able to roll over money from a 529 plan to a Roth IRA for the beneficiary of the 529 plan (the student).

There is a lifetime limit of $35,000 and the annual ROTH contribution limit applies so it will take a few years to get the maximum $35,000 rolled over. The benefit is the continued tax-free growth and elimination of the penalty.  College savings now become retirement savings.

We have started looking at Roth rollovers for clients with money left in 529 plans.  We make sure that your state conforms to the federal rules and that the account has been maintained for 15 years and begins the annual rollover which will continue until reaching the $35,000 maximum.

It is certainly a way to avoid taxes and penalties on funds that may not be used for education.

*"Saving for College and Section 529 Plans". Board of Governors of the Federal Reserve System. February 3, 2016. ** The college investor /529 plan and college savings statistics 07/2024 ***SECURE Act (94). 116th United States Congress. 

 
BE CAREFUL! 

We cannot stress enough the importance of staying vigilant when receiving emails and text messages. We have had several clients reporting strange requests in emails and some in text messages. DO NOT click on anything unless you are sure of the origin and nature of the message.

We have added links to our website that give additional information about how to protect yourself but here are a few.

 

Even though the email looks real, verify the sender:

 

  1. Were you expecting the communication?
  2. Click reply and see what email the response goes to. Often the email address has nothing to do with the subject matter.
  3. Do not give personal information unless you know the sender. ( We tell you when to expect a Docusign or something that must be returned.)

Scams come in many varieties, but they all work the same way:

 

  1. Scammers pretend to be from an agency or organization
  2. Scammers say there is a problem or a prize.
  3. Scammers pressure you to act immediately.
  4. Scammers tell you to pay in a specific way.
 
Year -End Notes

Retirement plan contributions. 
       Do you have room to add to reach maximum contributions? 

Required minimum distribution for 2024. 
        Finish making charitable contributions from your RMD  
        Make sure the RMD is taken before December 31
    
Medical Expenses
You may want to bunch medical expenses into the current year before Dec. 31 if you plan to itemize. Itemized expenses are only deductible to the extent that they exceed 7.5% of your adjusted gross income (AGI).