A 529 College Saving. Plan with Updated

A 529 college savings plan—also called a “qualified tuition plan”—is a tax-advantaged account specifically designed for use toward qualified college expenses or K-12 private school tuition. Most states offer their own 529 plan, which often come with added tax benefits for state residents. However, you’re not limited by your location; you can open a 529 plan in whichever state youchoose.

Investearnings from the 529 plan are tax-free, but the funds must be used toward qualified costs. If funds are used toward non-qualified expenses, you will incur tax penalties.

There are two types of 529 plans and nearly every state offers at least one. Generally, a prepaid tuition plan lets the account holder buy units or credits toward the beneficiary’s tuition at a participating public school.

The more common type of 529 plan is an education savings plan. This option lets account holders put funds in an investment portfolio, which might include a mix of exchange-traded funds, mutual funds and other investment options.Withdrawals can be used toward qualified higher education expenses, like tuition and fees, room and board, and books. Up to $10,000 per beneficiary can be used toward elementary or secondary school tuition.

Changes to 529 Pans 529-to-Roth IRA Rollovers

Under the tax rules, if funds in a section 529 plan are not used for education, the earnings are taxable and subject to a 10% penalty. This has scared many people away from funding 529 plans. As a way of relieving these fears, Congress included a provision in SECURE 2.0 that allows for rollovers of unused 529 funds to Roth IRAs. While this a worthy idea, beware of important restrictions on this new rollover rule.

The maximum amount that can be rolled over from a 529 account to a Roth IRA is $35,000. There is currently no indexing of this limit for inflation. The $35,000 limit is a lifetime maximum, and it appears to apply per beneficiary.

The Roth IRA must be in the name of the 529 beneficiary – not the 529 owner (if the owner is different from the beneficiary).

The 529 plan must have been open for more than 15 years. The IRS still hasn’t said whether a new 15-year waiting period is required when a529 is transferred to a new beneficiary.

Rollover amounts cannot include any 529 contributions (and earnings on those contributions) made in the preceding five-year period.

Rollovers are subject to the annual Roth IRA contribution limit. So, for example, no more than $7,000 can be rolled over from a 529 to a Roth IRA in 2024. The effect of this rule is that it would take several years to do a full $35,000 529-to-Roth IRA rollover.

Any 529-to-Roth rollover would count towards the IRA contribution limit in effect for that year. For example, a beneficiary doing a$5,000 rollover from a 529 plan in 2024 can only make an additional $2,000 IRA(or Roth IRA) contribution for 2024. Further, a 529 beneficiary doing the rollover must have compensation in the year of the rollover at least equal to the amount being rolled over.

My question is, is there a more advantageous strategy available?

The answer is affirmative. The FlexLife Plan is a tax-exempt investment strategy that accumulates wealth without taxation and is safeguarded against stock market losses. Additionally, if the beneficiary opts not to pursue higher education, the policyholder has the flexibility to utilize the funds for various purposes such as buying a car, making a down payment on a house, or taking a vacation. These withdrawals can be made freely without any restrictions imposed by government regulations. I recommend consulting Danny Favreau to explore the differences and benefits in detail.

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