529 plans provide families at all income levels with a tax-advantaged method for funding their children’s future education. Generally, contributions are invested and allowed to grow free of federal income tax when withdrawals are used to pay qualifying higher-education expenses, including tuition and fees for an undergrad or graduate school student; room and board, subject to limitations; computers, related equipment and internet access; and textbooks and other required school supplies. Earnings withdrawn for non-qualified expenses are subject to a 10 percent penalty and ordinary income taxes. However, thanks to the passage of the SECURE Act, families have more options for using their 529 savings.
The SECURE Act of 2019 expanded the eligible use of tax-free 529 education plan withdrawals to include the following:
The law also granted account owners the ability to change the name of a 529 plan beneficiary to another family member. This is especially beneficial when a child decides against college, receives a full scholarship to the school of their choice, or has funds remaining in their account after completing their education. Under these circumstances, a family may change the account beneficiary to a sibling pursuing an advanced degree or needing help paying off their student loans. Account owners may even name themselves as beneficiaries when they wish to go back to school to improve their professional skills or to pursue another career field.
One critical point that families should remember is that any 529 funds a university gives back to a plan beneficiary due to a coronavirus-related campus closure must be redeposited in the plan unless those funds will be used for another qualifying education expense during this year. Failure to transfer these refunds back into account plans may result in taxes and penalties.
Amid all the uncertainty created by the global health crisis, consideration should be given to how children will afford a college education and career training that will serve them for the rest of their adult lives. Use this time to meet with a financial advisor to help identify the education-saving plans and strategies that meet your changing needs and budget.
About the Author: Sean Deviney is a CFP®* professional, a retirement plan advisor and a director with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs and a registered representative with PWA Securities, LLC. He can be reached at the firm’s Fort Lauderdale, Fla., office at (954) 712-8888 or info@provwealth.com.
Provenance Wealth Advisors (PWA), 200 E. Las Olas Blvd., 19th Floor, Ft. Lauderdale, FL 33301Â (954) 712-8888.
Sean Deviney, CFP®*, is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state. Investors should carefully consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. This and other information about 529 plans is available in the issuer’s official statement and should be read carefully before investing. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan. Investments mentioned may not be suitable for all investors.
 The information contained in this report has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
* Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
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Updated on June 7, 2024