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529 College Savings Plans: 

Financial Planning Highlights & Hidden Gems

529 College Savings Plans are one of the most powerful and flexible tools for education planning in the U.S. But beyond the well-known tax perks, there are several hidden benefits that many families overlook.

Here’s a breakdown of the most important highlights — plus new opportunities in 2024 that make these accounts even more valuable.

1. 💰 Tax Advantages

• ✅ Tax-Free Growth: Earnings grow without being taxed.
• ✅ Tax-Free Withdrawals: Withdrawals are tax-free when used for qualified education expenses.
• ✅ State Tax Perks: Many states offer deductions or credits for contributions.

2. 📚 Qualified Educational Expenses

• 🎓 Higher Ed Expenses: Covers tuition, fees, room & board, books, laptops, software, and internet at accredited colleges.
• 🏫 K-12 Tuition: Use up to $10,000 per year for K–12 tuition at private, public, or religious schools.
• 💸 Student Loan Repayment: Apply up to $10,000 lifetime toward student loan repayment.

3. 🔄 Flexibility in Use

• 👨‍👩‍👧 Change Beneficiaries: You can change the beneficiary to a sibling, cousin, or other qualifying family member tax-free and penalty-free.

4. 📈 Investment Options

• 📊 Variety of Portfolios: Choose from a menu of investment options including age-based portfolios that automatically adjust as the child approaches college.

5. 🧾 Ownership and Control

• 👤 Account Control: The account owner (not the student) controls withdrawals and keeps decision-making authority throughout.

6. 🧮 Impact on Financial Aid

• 💼 Low Impact: While 529 accounts are considered in the Expected Family Contribution (EFC), they have less impact than student-owned assets in FAFSA calculations.

7. 🚫 Penalties for Non-Qualified Withdrawals

• ❗ Tax + 10% Penalty: If funds are not used for qualified education expenses, income tax and a 10% penalty apply to earnings.
• 🎖️ Penalty Exceptions: Exceptions include receiving scholarships, education tax credits, or attending a U.S. Military Academy.

8. 🔄 NEW: Rollover to Roth IRA (Effective 2024)

Hidden Gem Under SECURE Act 2.0

• 🆕 Tax-Free Roth IRA Rollovers: You can now roll over unused 529 funds into a Roth IRA for the beneficiary — tax- and penalty-free.
• 📅 15-Year Rule: The 529 Plan must be open for at least 15 years.
• 💵 $35,000 Lifetime Cap: Lifetime rollover limit per beneficiary.
• 📆 Annual IRS Limits Apply: Subject to Roth IRA contribution limits and the beneficiary must have earned income.
• ⏳ 5-Year Rule on Contributions: Any contributions made in the last 5 years (and their earnings) are not eligible for rollover.

🎯 Final Thought

529 Plans have evolved far beyond just college savings offering tax benefits, flexibility, and even retirement potential.

Planning ahead with the right strategy can help you:

• Maximize tax savings
• Avoid penalties
• Open doors to multiple financial planning opportunities

📅 Want to Create a Smart 529 Strategy?

Let’s personalize a plan that works for your family’s goals and takes advantage of the new Roth rollover rules.

👉 Schedule a Free Consultation with Lifetime Financial Planners