This year, college savings plans have evolved and gotten even more flexible and attractive.
Imagine if you had retirement savings started at two years old with the flexibility to grow tax deferred for 60+ years and then distribute in retirement TAX FREE. The power of compounding over 60+ years can be incredibly eye opening.
College savings plans have slowly been evolving over the years from the increasing limits to more lenient “educational expenses” including room and board, books, and other school supplies. Nothing quite like the most recent update we’ve seen in 2024.
Starting January 1st, 2024, unused college 529 accounts can be transferred to Roth IRA dollars in the beneficiary’s name to continue to grow tax deferred and tax free upon distribution. Things we know about this very advantageous benefit:
- A 529 must be established for at least 15 years
- Yearly conversions cannot exceed annual Roth IRA limits
- Maximum lifetime rollover limit is $35,000
- IRA contributions limits still apply to rollover dollars in that given year
Consult with a tax professional about this option and whether the 529 plan account is qualified for this rollover option.
As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state. However, if you withdraw money from a 529 plan and do not use it on an eligible education expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings.
Want to connect? Call 203.791.7249 or email me at
hannah.huntley@raymondjames.com
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