529 plans offer tax-free growth and new options that families may not know about
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American families saving money for their children's education can use tax-advantaged 529 accounts to make their dollars go further.
529 savings in education accounts are usually opened by parents, guardians or grandparents of minor children and allow those savings to grow in a tax-deferred manner, and funds can be withdrawn tax-free if used for qualifying expenses. Individuals may also open 529 accounts to help save for their education.
“529s are the perfect education savings vehicle,” said Thomas Psaltis, director of education savings programs. Bank of America Merrill Lynchhe told FOX Business in an interview.
“That increase in income, if used tax-free, can have a significant impact on providing more money for future education for children and grandchildren, but it also helps to fight the increase in education costs,” he said.
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Since their inception 30 years ago, the number of 529 programs has grown to 17 million accounts across the industry and has more than half a trillion dollars in total assets. (Stock)
Psaltis said that besides that main feature, 529 accounts offer other features that may not be available to those who use others. tax-advantaged savings accounts.
“One of the game-changers is the versatility of 529 accounts,” he noted, noting that they were traditionally designed to manage expenses at four-year colleges but “have grown so much that they're going beyond that.”
“Some of the latest laws under the SECURE 2.0 Act and anyway President Trump The One Big Beautiful Bill now allows spending on K-12 tuition, which has been expanded under the One Big Beautiful Bill from $10,000 a year to $20,000 to be used for K-12 private education, even if you don't use it directly for college,” Psaltis said.
“We now include registered apprenticeship programs and certification programs as part of eligible expenses that can also be used tax-free,” he added.
Psaltis said Merrill Lynch advisors encourage clients to focus on early planning, and that 529 plans can meet the needs. savings in education needs of customers at all income levels.
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Since their inception 30 years ago, the number of 529 programs has grown to 17 million accounts across the industry and has more than half a billion dollars in total assets, he noted. Although there have been 529 plans available to Americans for three decades, Psaltis added that there are still common misconceptions about how the accounts work.
“There are these misconceptions that you have to fully fund college for the 529 plan to be useful, sometimes that idea can create unnecessary pressure and cause families to delay starting,” he said.
“The biggest opportunity for that is the opportunity for that tax-free growth. Families who end up using taxable savings instead of a 529 may be giving up long-term benefits that can be used tax-free,” Psaltis said.
529 accounts can be opened by parents for children to use for school, college and trade expenses. (Valerie Plesch of The Washington Post via Getty Images)
Contributions are considered taxable gifts, so individuals can give up to $19,000 per year, to each beneficiary without incurring a gift tax liability. 529 accounts may be front-loaded for up to five years of giving all at once.
“Let's say there are grandparents who give $38,000 each year to their children with a 529. The 529 code allows them to contribute five times that – or $190,000 per beneficiary – in one year,” he said. “The contributions that were removed and the future growth of those contributions are usually no longer part of that grandparent's estate, as long as they live for the next five years it will not be subject to a gift or a long-term deferral.”
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In cases where the beneficiary of the 529 account may not plan going to college or approved technology plan, no distribution is required, so the funds can be kept in the account in case they change their mind and decide to do so at a later date.
Unused 529 funds can be given back to another beneficiary, or they can be rolled into an IRA to jump start retirement. (Stock)
“Stick to it forever, that kid who doesn't go to college at first, maybe in a few years they decide they want to further their education in college or school. authorized trading,” said Psaltis. “You can change beneficiaries at any time for any reason, so if there are unused funds, those funds can be shared with your siblings.”
“If all else fails, and you've had an account open for 18-plus years, there are still other options,” he added. “One of the key features that has come about in the last few years is the ability to roll over a portion of your 529 savings of up to $35,000 into income. A Roth IRA on behalf of the beneficiary to get help to start retirement, and that's a really good feature.”
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“At the end of the day, they are not locked into those funds. If for any reason they have to return that money, they can return that money themselves, but just be aware that this will be considered an improper withdrawal and that account holder will be charged income tax and a federal tax penalty of about 10%, but only on part of the income of the account,” said Psaltis.
