Pros of a 529 Plan:

A 529 College Savings Plan is most commonly endorsed by experts when it comes to education savings. Here’s a few reasons why:

• High Contribution Limits: Most 529 plans have high contribution limits, allowing families to save substantial amounts for their children’s education over time. Some plans even allow contributions of up to hundreds of thousands of dollars per beneficiary.

• No Income Restrictions: Unlike some other education savings vehicles, such as Coverdell Education Savings Accounts (ESAs), 529 plans have no income restrictions, making them accessible to families of all income levels.

• Shielding more income from financial aid calculations: While a parent-owned 529 plan is a component of federal financial aid calculations, it’s relatively small amount compared to other accounts such as a UTMA/ UGMA custodial account or a Roth IRA.

• Tax Benefits: One of the most significant advantages of a 529 plan is the tax benefits it offers. Contributions to the plan grow tax-deferred, meaning you won’t pay taxes on investment earnings as long as the funds are used for qualified education expenses.

• State Tax Deductions: Many states offer residents tax deductions or credits for contributions made to a 529 plan. This can provide additional savings for families, making it even more attractive to invest in a 529 plan.

• Investment Flexibility Outside your State: However, be aware that state tax benefits may vary, and not all states offer tax deductions or credits for 529 plan contributions. In this case families sometimes opt to investments beyond state lines to take advantage of the federal deductions. It’s essential to understand the specific tax implications based on your state of residence

• Age-Based Portfolios: Different plans offer varying choices, such as age-based portfolios, static portfolios, or even individual fund options. Age-based portfolios automatically adjust the asset allocation based on the beneficiary’s age, becoming more conservative as college approaches when you will need the money. This can be a great solution for those who don’t want to actively manage their investments.

• Beneficiary Flexibility: 529 plans offer flexibility in terms of the choice of beneficiary. This means that you can setup a 529 plan for yourself, family member, or even non-family members, provided they incur qualified education expenses.

• Expanded Use of Qualified Educational Expenses: One crucial aspect to understand when utilizing a 529 plan is what expenses qualify for tax-free withdrawals. These expenses typically include tuition, fees, books, supplies, and certain room and board costs incurred while the beneficiary is enrolled at an eligible educational institution. But in recent years the definition has expanded to also include K-12 tuition in some cases, study abroad, trade schools and apprenticeships, as well as technology needs like a laptop.

• Transferring unused funds to a Roth IRA: If you have unused 529 funds, but no beneficiary that plans to use them, you don’t want to cash out because you will owe tax on the earnings portion, plus a 10% penalty. Another new option created by SECURE 2.0 called the 529-rollover-to-Roth-IRA began in 2024 allowing you to move a certain amount of unused 529 funds to your Roth IRA.