Get Ready for Back-To-School with 529 plans

July 31, 2023

For many Americans, summer means pool days, baseball games, and perhaps a summer vacation. While we’re all enjoying more time outdoors (or indoors away from oppressive heat waves), the dog days of summer also mean back-to-school season is looming right around the corner.

This time of year often triggers discussions regarding 529 savings plans, and this back-to-school year there are some additional nuances to know.  With the passage of SECURE Act 2.0 in December of 2022, many new flexible features have been added to the already popular college savings tool.  As you may already know, a 529 plan is a tax-advantaged account earmarked for education savings that offers tax-deferred growth and tax-free withdrawals for qualified education expenses.  Qualified education expenses have been expanded to include tuition and fees for K-12, grad school, and trade school.

Some of the most frequently asked questions we receive regarding 529 plans include: Does American Trust “do” 529 plans?  How much should I be contributing?  What else do I need to know? Below, we’ve tried to provide some broad answers that may help you in the months to come.

Does American Trust “do” 529 plans?

As a trust company, American Trust Wealth is not a custodian on 529 plan assets. However, your Fiduciary Investment Advisor is here to offer advice and be a resource about different types of plans and review all of your college saving options accordingly.  Some clients prefer to split college savings between 529 plans and various other tools (education trusts, etc.).  College planning isn’t always “a one size fits all” situation.

How much should I be contributing to a 529 plan?

This is obviously a very individual question with too many variables to fully account for.  Are we planning for public or private school, potential scholarship opportunities, rising tuition costs, fully funded vs. partially funded goals, etc.  These are just some of the unknown factors to consider when establishing a funding plan. Once again, your Fiduciary Investment Advisor can help you determine goals, discuss multiple scenarios, and run projections to help identify a target goal. 

What else do I need to know about 529 plans?

We’ve already mentioned 529s aren’t simply for college planning as recent rules have expanded their use to K-12 education costs.  However, did you know that soon, 529s can also be used as a retirement tool?  Starting in 2024, for accounts that have been open for 15 years, 529 plan beneficiaries can convert certain assets into a Roth account.  There are limitations to these conversions, but this is a great new feature for those worried about overfunding a 529 plan.  Imagine saving for your son or daughter’s tuition, but they’re able to secure a scholarship.  Instead of wondering what to do with those unused 529 assets, you could potentially have those college savings converted to a post-tax retirement fund!

For many, 529 plans are a preferred choice for education savings due to their tax benefits and flexibility, now buoyed by SECURE 2.0 legislation.  Be sure to speak with your Fiduciary Investment Advisor regarding your specific goals or needs and consult your tax professional regarding specific contribution limits and rollovers.  Saving for college is tough, but we’re here to help make the process a little easier.

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