Good Investments
that are Right for You

BACK TO SCHOOL: THE APPEAL OF A 529 PLAN

529 College Savings Plan Form With Small Graduation Hat, Spectacles And Pen Over White Background

Paying for the cost of college is a critical financial goal for many families. Both students and their parents believe college is an important investment that can create opportunities.

Sallie Mae’s 2022 annual college survey found that 79% of families earning more than $150,000 a year reported having a strategy to pay for college, and 87% of all families were prepared to use income and savings to cover the costs.1,2

“Remember, though, education without Godly wisdom is just information. Seek Him!” wrote Mick Owens in his popular book, Diamond of Life: The Five P’s of Success and Significance.

529 Basics

One of the more popular college savings tools is the 529 plan. And thanks to recent legislation, 529 plans may get a lot more interesting in the years ahead.

A 529 plan is an education savings account that allows parents, grandparents, other relatives, and friends to save money that will be used for a child’s education.

Originally geared exclusively to pay for college, 529s in 2019 were expanded to pay for K–12, private and religious schools, trade schools, graduate programs, and some international institutions. At the last check, there are an estimated 16 million accounts with an average balance of nearly $26,000 at the end of 2022. That’s up from less than 13 million accounts in 2017.3

“For the protection of wisdom is like the protection of money, and the advantage of knowledge is that wisdom preserves the life of him who has it.” Ecclesiastes 7:12

And starting in 2024, a 529 account holder can move money to a Roth IRA account under certain conditions. Currently, money from a 529 that is used for non-educational expenses is subject to penalties and taxes.3,4

The main benefit of this new legislation is that it removes some of the uncertainty that can happen if your kids don’t need the 529 money or you overfund the account. There are some limits that go along with the updated rules, so it’s best to speak with us to see if this might apply to your situation. Or our planning department can help and provide a TAX ANALYSIS!

How Do They Work?

A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. The state tax treatment of 529 plans is only one factor to consider before committing to a savings plan. Also, consider the fees and expenses associated with a particular plan. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax. Whether a state tax deduction is available will depend on your state of residence.

In Indiana, for example, taxpayers making contributions to CollegeChoice 529 may receive a state income tax credit equal to 20% of their contributions. Married taxpayers who contribute $7,500 might receive a $1,500 credit if they meet other eligibility requirements.

But state tax laws and treatments vary, and some state tax laws may differ from federal tax laws. So, if you live outside of Indiana, call us for details on your state.

  1. SallieMae.com, 2022 https://www.salliemae.com/content/dam/slm/writtencontent/Research/HowAmericaPaysforCollege2022.pdf
  2. SallieMae.com, 2022 https://www.salliemae.com/about/leading-research/how-america-pays-for-college/
  3. CNBC.com, May 31, 2023 https://www.cnbc.com/2023/05/29/pros-and-cons-of-529-plans-in-college-savings-and-tax-breaks.html
  4. Roth IRA distributions must meet a five-year holding period and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. In certain other circumstances, such as the owner’s death, tax-free and penalty-free withdrawals can also be made. Keep in mind that the original Roth IRA owner is not required to make minimum annual withdrawals.

Other Recent Articles

Quiz: Tax Facts

One benefit to self-insurance is that you can pocket money that you have paid in insurance premiums. Learn more about whether self-insurance is a concept you'd like to explore further with your financial adviser.

Estate Tax Law Changes at the End of 2025

One benefit to self-insurance is that you can pocket money that you have paid in insurance premiums. Learn more about whether self-insurance is a concept you'd like to explore further with your financial adviser.

Should We Consider an Individual Living Trust or a Family Trust?

One benefit to self-insurance is that you can pocket money that you have paid in insurance premiums. Learn more about whether self-insurance is a concept you'd like to explore further with your financial adviser.

Estate Tax Law Changes at the End of 2025

One benefit to self-insurance is that you can pocket money that you have paid in insurance premiums. Learn more about whether self-insurance is a concept you'd like to explore further with your financial adviser.

Should We Consider an Individual Living Trust or a Family Trust?

One benefit to self-insurance is that you can pocket money that you have paid in insurance premiums. Learn more about whether self-insurance is a concept you'd like to explore further with your financial adviser.

Asset Allocation vs. Diversification: What’s the Difference?

One benefit to self-insurance is that you can pocket money that you have paid in insurance premiums. Learn more about whether self-insurance is a concept you'd like to explore further with your financial adviser.