Higher education isn’t getting any cheaper. For families, that means it’s never too early to begin thinking about how to help loved ones afford a college education. While many people are told to “save for college,” at Peak Financial Group, we prefer to think of it as investing for college. In fact, dedicated investment vehicles, like 529 plans, can help families potentially grow their money specifically for college funding. In honor of National 529 Day, which (surprise!) takes place on May 29th, here are four reasons to consider a 529 plan.
Earn Tax-Free Growth
Since 529s are funded with post-tax income, they accrue tax-free gains, much like a Roth IRA. This is one reason why starting a 529 early in your child’s life can be advantageous. The longer you have the account, the more capital gains you should be able to accrue tax-free.
Qualified Educational Expenses Have Expanded
Expenses go far beyond tuition and room and board. Whether it’s technology costs, textbooks for new classes each semester, or course supplies, extra costs can add up fast. A 529 plan holder can use the account’s funds to pay for any of these qualified expenses. (Note: Any disbursements from the plan that aren’t for qualified expenses are subject to taxation and penalty.) Under the 2017 Tax Cuts and Jobs Act, some states allow qualified expenses for K-12 students up to a $10,000 limit. At Peak, we have experience with 529 plan holders across multiple states and can help ensure you make the most of your plan.
Contributions May Be Tax-Deductible
Depending on your state, you may be allowed to deduct contributions to your 529 plan on your taxes. This is yet another unique benefit of this type of plan. Not only are you investing in your child’s educational future (tax-free!), but you’re also receiving a tax benefit in the present. You don’t need a college degree to know that’s a pretty good deal!
529 Accounts Can Be Rolled Over to Roth IRAs
By planning early enough, you might find yourself in the fortunate position of having money left over in a 529 account after your child graduates from college. What happens then — does the money become subject to penalties? Not necessarily. Starting in 2024, 529 plans can be rolled over into a Roth IRA for the account’s beneficiary, up to a $35,000 maximum.
At Peak Financial Group, we strive to help families and individuals reach peak success in all aspects of their lives. We know how important education is to long-term success, which is why we’re experienced professionals in helping families plan for their education with 529 plans. Get in touch with us today to learn more about why a 529 plan may be right for you.
A 529 plan is offered by prospectus, which includes more complete information on charges, expenses and risks and whether it is appropriate for you based on your financial situation and objective. Please read the prospectus carefully before investing or sending in money. Past performance cannot guarantee future results.
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