How 529 Plans Are About to Get More Valuable – Seize the New Benefits!

How 529 Plans Are About to Get More Valuable: For a long time, 529 plans have been thought to be the best way to save for college for a child. These state-sponsored investment accounts have been around since 1996. You can use the tax-free gains and withdrawals to pay for tuition and other approved educational costs.

Some families have been upset about the rule that the money be used for school: what if their child didn’t need all that money for school? What if they decided not to go to college at all?

Beginning January 1, changes to the rules about retirement savings will make it possible to move money from a 529 plan to a Roth IRA account without having to pay a tax penalty.

Vivian Tsai, chair of the College Savings Foundation, told CNBC in the past, “This is a big deal.”

“The main thing that people don’t like about it is that they might not use the money for education.” Tsai said. “You can now use it to retire.” It gets rid of a big problem.”

Find out about 529 plans and what the changes might mean for you.

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What does a 529 plan do?

A 529 college savings plan, which is also called an approved tuition program, is an investment account that lets you make money without paying taxes on it and take money out tax-free. At first, the money could only be used for college after high school. But in recent years, it has been able to be used for kindergarten through high school fees, continuing education, internships, and up to $10,000 in student loans.

Every state has its own 529 plan, but most of them are open to everyone in the US. Account holders who live in the same state may get extra perks, like tax breaks or funds that match their deposits.

There are two major types of 529 plans: education savings plans and prepaid tuition plans. Education savings plans let account holders pay current tuition rates for future attendance at certain state schools. Withdrawals from these plans are tax-free if used for educational costs.

My529 (Utah) is one of CNBC Select’s top picks. It has a variety of age-based investments that become more conservative as the child gets closer to college age. Not many fees, and you don’t have to make a minimum deposit or keep a certain amount in the account.

The CollegeAdvantage (Ohio) 529 plan is offered to people all over the country, but Ohioans can get special tax breaks. SavingforCollege.com data shows that it’s one of the best plans for 10-year results. It has low-fee strategies that can be age-based, risk-based, or custom-designed.

What are the changes to 529s?

Before, any transfers that weren’t used for school costs were taxed by the federal government and earned an extra 10% in penalties. But starting January 1, 2024, leftover funds in a 529 plan can be moved tax-free to a Roth IRA account.

With a Charles Schwab Roth IRA, people can put in money that has already been taxed, and there is no monthly service fee or minimum payment requirement. When you trade stocks or ETFs, you don’t have to pay any fees. The same goes for thousands of mutual funds.

The Secure 2.0 Act, which was passed in December 2022, made many changes to retirement savings. One of these is the change to 529 plans.

Here are some more rules about 529 plans: Before rolling over into a Roth IRA, the account must have been open for at least 15 years. Also, contributions made in the last five years are not qualified. You can only put a certain amount of money into a Roth IRA each year, and you can only move a total of $35,000 over the course of your lifetime.