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5 Benefits of a 529 College Savings Plan

Keel Point

May 29, 2024

There are many reasons to save for college using a 529 plan, including the potential for:

  1. Tax Benefits: Money deposited into a 529 plan grows tax-deferred and withdrawals made for qualified educational expenses are tax free when used for the designated beneficiary. In addition, many states (with an income tax) allow either an income deduction or state tax credit for plan contributions.

Qualified Education Expenses

  • Tuition and Fees (limited to $10,000 per year for private k – 12), depending upon the state of the plan
  • College books and supplies
  • Computers, software, and internet access for college
  • College room and board (when enrolled at least half-time)

In addition, the SECURE Act added the ability to take a distribution from a 529 college savings plan to repay student loans of up to $10,000.

Source: Saving For College

  1. High Contribution Limits and the Ability to Front-Load Contributions: Although contribution limits vary by plan, the maximum amount you can contribute per beneficiary can be as high as $550,000 or more (the estimated cost of a four-year, private degree). In addition, you are allowed to front-load five years of contributions, based on the Federal gift tax exemption, allowing you to give $18,000 x 5 or $90,000 per beneficiary (or double that for married couples) in 2024, providing more time for the assets to potentially grow.
  1. The Grandparent Loophole: Beginning with the 2024 – 2025 academic school year, 529-plan distributions made from an account owned by a grandparent, non-custodial parent, or other adult who does not reside in the same home as the student will not negatively impact a student’s eligibility for financial aid, per the new FAFSA (Free Application for Federal Student Aid) rules. In the past, a grandparent’s 529 plan distributions were reported as untaxed student income and 50% of the gift was considered available funds, potentially reducing aid eligibility by half of the amount of the gift.
  1. The Flexibility to Move Leftover Funds: Beginning in 2024, up to $35,000 of a beneficiary’s leftover 529 plan funds can be transferred into a Roth IRA, subject to rules, including that the account must have been open for at least 15 years, the beneficiary must have earned income, and the amount of the transfer cannot exceed the yearly limit each year. In addition, you can change the beneficiary of the plan to a sibling, cousin, or other close relative, within the IRS limitations.
  1. A Range of Investment Options: Keel Point provides access to a range of 529 plans with different investment options, and can work with you to determine how a 529 plan integrates with your estate plan, which plans are the best fit for you, how much to contribute and how to invest the funds.

Reach out to your Keel Point team

Keel Point is dedicated to helping clients and their families achieve their generational wealth goals. Please reach out to your Keel Point advisor with any questions about how to help your loved ones finance the high and rising cost of a college education.

Not yet working with Keel Point?

If you are not yet a client, please reach out to a Keel Point team member near you to schedule a consultation, so we can help you and your loved ones invest in your purpose.

 

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