Manage Your Own 529 Plan (2024)

FAQs

Manage Your Own 529 Plan? ›

If you find that you struggle to stick with your strategy when the market falls, a self-directed 529 plan might not be the best solution for you. Whatever plan you choose, there are a few key elements you should keep in mind: First, be sure that the plan you're choosing balances cost with your personal needs.

If you find that you struggle to stick with your strategy when the market falls, a self-directed 529 plan might not be the best solution for you. Whatever plan you choose, there are a few key elements you should keep in mind: First, be sure that the plan you're choosing balances cost with your personal needs.

You can choose to pay bills first and then reimburse yourself from the 529 account, or you can pull money from the 529 account and then use it to pay bills from your bank or brokerage account. This path also provides flexibility when paying smaller bills like those for books or off-campus room and board.

New 529 Plan Rules

Under the new law, beginning in 2024, you can withdraw funds from an existing 529 plan and roll them into a Roth IRA. There are some important rules: The Roth IRA must be established for the beneficiary of the 529 plan (the student), and not the account owner (typically, a parent).

You can also pay for groceries and utilities, always up to the cap of the cost of attendance. Make sure you keep a record of all your purchases and keep receipts for everything you want to count as a 529 disbursem*nt – this is essential for your tax return.

What happens to unused 529 funds? Your 529 account will never expire, even if your child ends up not using it. You can leave the funds in the account, allowing investments to grow tax-deferred, and use the funds down the road for a grandchild or another qualified family member.

Most 529s plans allow you to change the beneficiary once a year. So if your child won't be using the money, you can transfer the assets penalty-free to eligible family members, such as the account owner (typically a parent or grandparent) or a close family member.

You can use your 529 plan to purchase a computer, “peripheral equipment” (like a mouse or speakers), computer software, or internet access.

Average 529 Balance and More Savings Statistics

In June 2022, the average 529 balance was $25,903. In June 2021, the average 529 balance was much higher at $30,287. The vast majority of 529 funds are in 529 college savings plans, not 529 prepaid tuition accounts.

Unlike these child custodial accounts, Section 529 plans are not irrevocable gifts: The parent or other account owner retains control. Generally, the same person who contributed the money controls the Section 529 account.

Can you roll up to $35000 from 529 plan accounts into Roth IRAs? ›

Beginning in 2024, beneficiaries of 529 accounts will have the option to roll over up to $35,000 over the course of their lifetime to their Roth IRA . Rollovers are subject to Roth IRA annual contribution limits, and the 529 account must have been open for more than 15 years.

One of the many benefits of saving for a child's future college education with a 529 plan is that contributions are considered gifts for tax purposes. In 2023, gifts totaling up to $17,000 per individual will qualify for the annual gift tax exclusion, up from $15,000 in 2018-2021 and $16,000 in 2022.

Pay down student loan debt

The SECURE Act allows 529 plan owners to use up to $10,000 to pay off student loan debt without any tax consequences or penalties. The limit is based on the beneficiary, not the account, so you can use this approach with more than one beneficiary.

If you're paying for school expenses from a 529 plan or a Coverdell ESA, you will likely receive an IRS Form 1099-Q, which reports the total withdrawals you made during the year.

Technology Items – You can use a 529 plan to cover technological needs such as computers, printers, laptops and even internet service. These items must be used by the plan beneficiary while enrolled in college.

Equipment: If the student needs equipment such as a laptop, printer or internet service, you can pay for these out of the 529 plan.

'Grandparent Loophole': This New FAFSA Rule Can Help Maximize College Savings. Starting this year, grandparent-owned 529 savings accounts won't be counted toward a student's FAFSA eligibility. Margaret Attridge is a news reporter for BestColleges focusing on higher education news stories in California.

There are no time or age limits on using a state 529 college savings plan. Money can be kept in a 529 plan indefinitely. 529 plans can be used for graduate school, not just undergraduate school, and can be passed on to one's children. There is also no age limit on contributions to a 529 plan.

If you withdraw more than the QHEE, the excess is a non-qualified distribution. You or your beneficiary — you get to choose who receives the money — will have to report taxable income and pay a 10% federal penalty tax on the earnings portion of the non-qualified distribution.

When the beneficiary turns age 30, any leftover funds in the account must be withdrawn within 30 days to avoid income tax and a 10% penalty. However, unlike Coverdell ESAs, 529 plans do not have age limits. When a 529 plan beneficiary graduates or leaves college, the funds can remain in the account indefinitely.

When should I move my 529 to cash? ›

A key point to understand: You must request a cash withdrawal from a 529 plan during the same calendar year as you make the payment. If the timing is off, you risk owing tax because it will be considered a nonqualified withdrawal.

Yes. The SECURE Act allows funds to be used to pay off both federal and private student loans. However, the funds may not be used for other types of consumer loans, such as personal loans or credit cards.

Parents can make 529 withdrawals by completing a withdrawal request form online. Some plans also allow 529 plan account owners to download a withdrawal request form to be mailed in or make a withdrawal request by telephone. The withdrawal request form will typically ask for information such as: 529 plan account number.

Withdrawals from 529 plans are called distributions, and they must be used toward qualified education expenses – otherwise they will incur federal income tax and an additional 10% penalty. Health insurance and child care, for example, don't qualify.

Club and activity fees, including fraternity and sorority membership dues: These are considered extracurricular and are not eligible. 6. Lifestyle and personal expenses: Mini refrigerators, laundry and personal expenses are not eligible.

If you save $100 a month for 18 years, your ending balance could be $35,400. If you save $100 a month for 9 years, your ending balance could be about $13,900.

Ideally, you should save at least $250 per month if you anticipate your child attending an in-state college (four years, public), $450 per month for an out-of-state public four-year college, and $550 per month for a private non-profit four-year college, from birth to college enrollment.

The IRS Knows All

In any year you withdraw money from a 529 Plan, you will receive a tax document from the 529 Plan provider (Form 1099-Q). That means you cannot sneak one by on your tax filing. If some or all of the amounts withdrawn are taxable, you will have to report it on your 1040.

It depends on what the withdrawal was used to pay for. If the funds were spent on qualified education expenses or rolled into another 529 plan you don't have to report anything. However, 529 funds spent on purchases that do not fall into one of these two categories will be considered taxable withdrawals.

Can I transfer a 529 plan to an IRA? ›

117-328) alleviates some of this concern by introducing a special rule allowing distributions from 529 plans to Roth IRAs. This essentially allows unused college savings to be transferred to a beneficiary's retirement savings without taxes or penalties. The new distribution rule takes effect in 2024.

Earned income cap on contributions: 529 plans do not have an earned income cap on contributions, while Roth IRAs do. 5-Year gift tax averaging: Roth IRAs are not subject to 5-year gift tax averaging, while a $85,000 limit ($170,000 for couples) applies for 529 plans.

The SECURE 2.0 Act, which became law in December 2022, changed the 529 account rules to allow up to $35,000 to be rolled over into a Roth IRA. The change will begin in 2024.

There is no numeric limit for 529 plan withdrawals as long as the withdrawal amount is consistent with the cost of your qualified education expenses. However, if you're withdrawing money for students between K-12, the tax-free withdrawal limit is $10,000 per year.

Annual 529 plan contribution limits

529 plans do not have annual contribution limits. However, contributions to a 529 plan are considered completed gifts for federal tax purposes, and in 2023 up to $17,000 per donor ($16,000 in 2022), per beneficiary qualifies for the annual gift tax exclusion.

You read that right. If you invest in a 529 college savings plan, and that plan puts your money in a variety of investments as most do, you can lose money. That's because these investments, ranging from stocks to bonds, can go down in value. It's just like your retirement accounts.

Distributions from a 529 plan may be paid directly to the educational institution, to the beneficiary or to the account owner. Either the account owner or the beneficiary will have to pay income tax on the earnings portion of a non-qualified distribution plus a 10% tax penalty.

Room and board are covered by 529 withdrawals as long as you have an education savings plan (generally, the prepaid plan cannot be used to cover these expenses) and you are at least a part-time student.

Because they aren't governed by ERISA regulations, 529 plans also have no audit requirements. That does not mean, however, that some element of audit or compliance won't be instituted in the future. Employees expect the company to monitor the plan's performance, especially if it is an employer-sponsored plan.

529 plans can be used for room and board, off-campus housing and food expenses as long as the student is enrolled at least half-time as defined by the school.

Can I roll a 529 plan into a Roth IRA? ›

Beneficiaries of 529 accounts that have been open for more than 15 years can roll over up to $35,000 over time into a Roth IRA in their own name.

As long as the new beneficiary is a family member—a sibling, first cousin, grandparent, aunt, uncle, or even yourself—the money can be used for qualified education expenses without incurring income taxes or penalties.

You can also pay for groceries and utilities, always up to the cap of the cost of attendance. Make sure you keep a record of all your purchases and keep receipts for everything you want to count as a 529 disbursem*nt – this is essential for your tax return.

Can you reimburse yourself from a 529? You can reimburse yourself for qualified expenses from your 529 plan after you've already paid for them, as long as you still withdraw in the same calendar year.

Whether you're looking to fund your educational pursuits now or in the future, 529 plans may seem like attractive options, given all the tax benefits they come with; luckily, any person has the ability to open a 529 plan for themselves at any point.

Unlike these child custodial accounts, Section 529 plans are not irrevocable gifts: The parent or other account owner retains control. Generally, the same person who contributed the money controls the Section 529 account.

A 529 plan must have an owner (such as a parent or grandparent) and a beneficiary (the student). The owner controls the contribution level, investment allocation and how and when to disburse funds. The owner also can change the 529 beneficiary.

You may use a single 529 plan account to save for more than one child as long as you change the beneficiary when it's time to pay for your next child's college expenses — at no cost. In most cases, it makes sense to have a separate 529 for each child, but some parents may prefer to use a single plan.

If you were to die or become legally incapacitated, the successor account owner assumes all rights and responsibilities for the 529 account. The successor can be, but does not have to be, a spouse. (A very small number of 529 plans permit spouses to establish the account as joint owners.)

529 withdrawals are tax-free to the extent your child (or other account beneficiary) incurs qualified education expenses (QHEE) during the year. If you withdraw more than the QHEE, the excess is a non-qualified distribution.

Should 529 be in child's name? ›

Anyone can own a 529 higher education savings plan and anyone can be the beneficiary of that plan. As the owner of the plan, you have the ability to direct the investments and choose (or change) the beneficiary. Most commonly, parents are the owners of the 529 plan and their children are the beneficiaries.

The Education Plan College Savings Program is managed by Ascensus College Savings and features enrollment-based, index and actively managed static portfolios, and individual fund options from a variety of fund families.

Since there are no time limits imposed on 529 plans, the student may keep contributing to a 529 plan throughout college or after graduation and use any leftover funds to repay student loans tax-free.

With tax-benefits, 529 plans may be a smart way to give your children the gift of education. An irrevocable trust may be an even better alternative if you're concerned about estate taxes. Irrevocable trusts offer more investment and distribution flexibility than 529 plans.