When it comes to saving for your child’s education, 529 plans are a popular choice due to their 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:
- State Flexibility: You’re not bound to your state’s 529 plan. Shop nationally based on fees, benefits, and limits.
- Beneficiary Changes: Switch beneficiaries easily or roll funds to another family member’s plan yearly without penalties—ideal if educational paths change.
- Expense Coverage: Beyond tuition, 529s cover room, board, books, computers, and necessary internet.
- Financial Aid Impact: Minimal. 529s are parental assets, affecting only up to 5.64% of the expected family contribution on FAFSA—much lower than student-owned assets.
- Unused Funds: Change beneficiaries or, starting in 2024, roll over up to $35,000 to a Roth IRA, providing a pathway from educational to retirement savings.
Understanding these lesser-known aspects of 529 plans can help you make the most of your savings strategy for educational expenses. 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:
U.S. Securities and Exchange Commission. (2023, August 31). Updated Investor Bulletin: 10 Questions to Consider Before Opening a 529 Account. SEC. Retrieved June 25, 2024, from https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_529accountquestions
Compare 529 Plans By State. (2023, October 17). Forbes Advisor. Retrieved June 25, 2024, from https://www.forbes.com/advisor/student-loans/compare-529-plans-by-state/