Financial Planning for Your Child's Education.

As a parent, you want to see your children succeed in all aspects of life, including their educational aspirations. Planning for your child's education is one of the most significant investments you can make towards their future. Enter the 529 savings plan.

In this blog, JTM will explore a 529 savings plan and its numerous benefits. Whether you are a new parent starting to plan for your child's future or a seasoned saver looking to maximize your investment, understanding the full potential of a 529 plan can be a game-changer.

Join us as we explore why a 529 savings plan could be the smartest move you can make for your child's educational aspirations. 

Financial Planning in Alexandria: Understanding the 529 Savings Plan

A 529 savings plan is a powerful, tax-advantaged vehicle designed to help prepare for future educational costs. Over the years, legislative changes have expanded the scope and benefits of 529 plans, including allowing use for K-12 tuition and specific apprenticeship programs, solidifying its role as a versatile and practical savings vehicle for education.

Benefits of a 529 Savings Plan

The benefits of a 529 savings plan include: 

Tax-Free Growth: 

The earnings on investments in a 529 plan grow federal tax-free, meaning you do not have to pay federal taxes on the investment gains while the money remains in the account. Additionally, this kind of savings plan allows individuals to contribute up to $17,000 per year ($34,000 for married couples) per beneficiary without incurring gift taxes. 

Tax-Free Withdrawals (on Qualified Expenses):

Eligible expenses for 529 plans are broadly defined to cover various educational costs. Some of these expenses include tuition, fees, books, supplies, and equipment required to enroll or attend an eligible educational institution. Additionally, 529 funds can be used for room and board, provided the student is enrolled at least half-time. 

A Wide Range of Eligible Institutions:

Recent legislative changes have expanded eligible expenses to include up to $10,000 per year for K-12 tuition, as well as costs associated with apprenticeship programs and student loan repayments (up to a lifetime limit of $10,000 per beneficiary and each of the beneficiary's siblings).

Complete Control Over Funds:

The account owner, typically a parent or grandparent, retains control over the 529 plan. The account owner can decide on contributions, investment choices, and withdrawals. Owners can typically change the investment strategy twice per year.

The Ability to Change Beneficiaries within the Family: 

An attractive benefit of the 529 savings plan is the ability to change the beneficiary to another eligible family member without tax penalties. Eligible family members include siblings, parents, children, aunts, uncles, and cousins.

Changing the beneficiary does not affect the account's tax benefits. The new beneficiary inherits the account balance and can use the funds for their qualified education expenses. There is no limit to the number of times a beneficiary can be changed, provided the new beneficiary is a qualifying family member.

Low Impact on Financial Aid:

While 529 plans are considered in financial aid calculations, the impact is relatively modest compared to other assets, making the 529 savings plan an advantageous option for college savings.

*Newest Benefit: Unused Funds from 529 Savings Plans can be Rolled Over into Roth IRAs. 

As of January 2024, any money left in a 529 plan after covering educational expenses for the beneficiary can be transferred to a Roth IRA without the usual 10% penalty for early withdrawal, though it will be taxed as income. This new change offers greater flexibility in managing savings and investments for education and retirement planning purposes.

Financial Planning for Your Child's Future: How to Get Started

JTM Williams Capital Management is dedicated to helping you navigate the limitations and restrictions associated with 529 savings plans. We are a financial planning firm in Alexandria with an additional office in Bridgeport, serving clients nationwide.

We aim to provide valuable insights into understanding qualified expenses and providing compliance with plan rules. We offer guidance on how your specific state handles 529 savings plans, including information on residency-based benefits, tax implications, and available investment options. Our goal is to empower you to make informed decisions about the best 529 savings plan for your family's educational goals.

Don't wait until college expenses are just around the corner—take the first step today. Your child's future is worth the investment—act now!