🎓Did you know that May 29th is also known as 529 College Savings Plan Day?

🎓 Happy 529 College Savings Plan Day!

Thinking about how you’re going to pay for your child’s college education, can be overwhelming. Luckily, we do have some options that are specifically aimed at helping you save, invest, and pay those tuition bills. One such solution is called a 529 plan. In this blog post, we'll explore what a 529 plan is, the updates made by the Secure Act 2.0, and the significance of 529 Plan Day.

Let’s start with the basics. What is a 529 Plan?

A 529 plan is a tax-advantaged savings plan designed to help individuals and families save for education expenses. It is named after Section 529 of the Internal Revenue Code, which governs these types of accounts.

These plans are sponsored by states, state agencies, or educational institutions, and there are two types of 529 plans: prepaid tuition plans and college savings plans. Prepaid tuition plans allow you to pay for future tuition costs at today's prices, while college savings plans allow you to invest in a variety of mutual funds or exchange-traded funds (ETFs) to save for future education expenses.

There are several benefits to investing in a 529 plan. The biggest advantage is that the money you automate and contribute regularly grows tax-free, and when you withdraw funds to pay for qualified education expenses, you won't pay any taxes on the earnings. Qualified education expenses can include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.

Additionally, many states offer tax benefits for contributions made to a 529 plan. For example, some states allow you to deduct your contributions from your state income tax, while others offer tax credits or matching grants for contributions made to a state-sponsored 529 plan. In my home state of MA, there is a tax deduction for up to $1,000 contribution (if you file Single) or $2,000 (for Married filing jointly).

And, if you’re in MA and have had a baby 🍼 within the past 12 months, check out the BabySteps Savings Plan.

Upon delivering your baby in a MA hospital, while enjoying baby’s arrival, hospital personnel may have discussed this with you when you filled out a parent worksheet for your baby’s birth certificate. Do you remember this conversation in your post-birth haze? LOL.🤪

Basically, every child born or adopted in Massachusetts is eligible to receive a free, $50 deposit into a U.Fund 529 College Investing Plan account thanks to the BabySteps Savings Plan. Families simply need to open a U.Fund account within one year of the child's birth or adoption to receive their $50. No additional contributions are necessary. BabySteps is managed by the Massachusetts Treasurer and Receiver General's Office of Economic Empowerment.

In fact, research shows that starting college savings ASAP after baby’s arrival, greatly increases your opportunity to make a positive impact on your child’s social emotional health as well as development of a ‘college-bound identity’.

I haven’t done the research on similar programs in other states, but if you have information about your home state you care to share, I’d love to learn from you. Contact me here.

Let’s turn to important 529 plan updates made by the Secure Act versions 1.0 and 2.0

We have seen two versions of the Secure Act  - version 1.0 and version 2.0. Both Secure Acts provide for important updates and more retirement and education savings options for individuals and families. Some of the updates include:

1.    Expansion of qualified education expenses: The Secure Act 2.0 proposes to expand the definition of qualified education expenses to include expenses related to apprenticeships and student loan payments. This would allow individuals to use 529 plan funds to pay for these expenses tax-free. Read more here.

2.    Allowance of rollovers to ABLE accounts: ABLE accounts are tax-advantaged savings accounts designed to help individuals with disabilities save for disability-related expenses. The Secure Act 2.0 proposes to allow rollovers from 529 plans to ABLE accounts without penalty, up to the annual ABLE contribution limit.

3.    Expansion of tax credits: The proposed legislation would create a new tax credit for contributions made to 529 plans. The credit would be up to $1,000 per year, per beneficiary, for families with incomes up to $100,000.

4.    👏 In my opinion, the most exciting development allows unused 529 plan funds to qualify for penalty-free rollovers from 529 accounts to Roth IRAs (with some limitations). So if you’re working hard to contribute and save for your child’s education, and they wind up receiving merit or other scholarships, you can redirect unused education funds to jumpstart your child’s retirement savings, in the form of a ROTH IRA. The lifetime max is $35,000, and the 529 plan must have been open for more than 15 years. (See above, the discussion of opening a 529 plan at birth – this is one more reason to consider this for your baby). And if you like nerding out on personal finance, like me 🙇🏾‍♀️ 🔬, see Section 126, page 6, of the Senate’s Finance doc for more info.

Why do we celebrate 529 Plan Day?

529 Plan Day is celebrated annually on May 29th (5/29) to raise awareness about the benefits of 529 plans. The day was established by the College Savings Plans Network to promote the use of 529 plans as a way to save for education expenses. On 529 Plan Day, many states offer promotions and incentives to encourage families to open or contribute to a 529 plan, so it makes sense to take a look at what your state offers.

Obviously, there are MANY more important college saving tips – and I’d love to hear yours! I would also argue that by taking your child’s college savings seriously, you’re helping jump-start them on the importance of education, from a really young age, which is one of the best gifts you can provide your child. If if you’d like to discuss your unique situation, please schedule time with me.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substituted for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.