Are 529 plans still a good idea?

Every state offers one or more 529 plans, and most provide tax breaks if you invest in them. However, you don't have to invest in your own state's plan. 529 plans have some risks, but they're still one of the best and easiest ways to invest for your child's education.

What is the downside to a 529 account?

Only certain education expenses qualify, so you need to make sure you're withdrawing money for qualifying expenses to avoid taxes. If you use 529 savings plan funds for non-qualified withdrawals, they may incur a 10% penalty. And they may be subject to federal income tax.

Does a 529 still make sense?

529 plans may be a good fit for you in some circumstances. First, they can be beneficial today if you live in a state that offers state tax benefits for contributing to your state's 529 plan. Check with your state to see if you qualify for any tax benefits.

Why 97% of people don't use 529 college savings plans?

It's easy to see why Americans don't embrace 529 plans. They often have limited investment options, high fees, complicated rules and anxiety-producing investment risks. All that said, the plans may ultimately be worthwhile for most families, as long as parents choose carefully. Focusing on fees is crucial.

Are 529 plans losing money right now?

529 college savings plans took a hit last year: How to protect your money with more volatility ahead. Total investments in 529 college savings plans took a hit in 2022, sinking 15% from a year earlier. But these portfolios are designed to weather some ups and downs.

Are There Better Options Than a 529 Plan For College Savings?

Do rich people use 529 plans?

A 529 college savings plan offers a tax-free way to save for college. There are two major ways that wealthy Americans are making the most of their 529 plans. One big takeaway for the average saver: save early and save often.

Is it better to have a 401k or 529?

There are two major advantages to 529s. First, unlike a Roth IRA or 401(k), you can contribute as much as you like until you meet a specific balance (often $400,000). Second, you won't be taxed on your investments as they grow. And finally, you can withdraw money tax-free.

Can I convert my 529 to a Roth IRA?

Starting in 2024, beneficiaries of 529 college savings accounts are permitted to do a tax-free rollover to a Roth IRA.

What percentage of Americans have a 529 plan?

In 2022, Sallie Mae and Ipsos surveyed nearly 2,000 college undergraduates and their parents about how they paid for college. The survey found: 33% of families used college savings plans (such as a 529) to help pay for college. The average college savings plan amount they used to help pay for college was $6,872.

What happens to money in 529 if not used for college?

You can keep the money in the 529 account in the case your kid decides to pursue college or a graduate degree in the future. There is no requirement to withdraw funds at the age of 18–the money can remain in the plan indefinitely as long as there is a living beneficiary.

Is there anything better than a 529 plan?

Some 529 alternatives include using a custodial account, Roth IRA or Coverdell Education Savings Account.

What age is too late for 529?

You know the saying, “It's never too late…” Truly, it's never too late to save for your child's college education in a 529 plan, even if it's their senior year of high school. Why? 529 plans offer many benefits to enhance the growth of funds placed aside for future college costs—even if the future is 2021.

What happens to a 529 account when the child turns 18?

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.

Is a 529 or Roth IRA better for children?

Is a Roth IRA better than a 529 plan? A 529 savings plan is generally an all-around good choice to pay for your child's (or your own) college, while a Roth IRA may be a better option as a backup account to supplement educational expenses.

Is a 529 better than a savings account for a child?

529 Plan v. Savings Account. A 529 plan's main benefits are tax-deferred growth, more growth potential, and tax-free withdrawal for qualified education expenses. A 529 Plan can be invested into ETFs or target date funds which can offer more growth opportunities compared to a lower interest-earning savings account.

Does contributing to a 529 reduce taxable income?

1. 529 Plans Offer Unsurpassed Income Tax Breaks. Although a contribution to a 529 plan is not an income tax deduction, earnings in a 529 plan grow federal tax-free and are not taxed when you withdraw the money to pay for numerous college and other qualified education expenses.

How much should I put in 529 per month?

This might look like $400 or $700 monthly, depending on how early you start. You should also consider inflation in your projections, but a strong 529 plan takes care of that return. Of course, consider costs for accommodation and residence if your child attends an out-of-state school.

How much money does the average college student have in savings?

That survey found that U.S. college students and recent graduates of all ages are not swimming in the dough. A whopping 61% have less than $1,000, and the majority of those don't have anything put away for a rainy day.

How much do most parents save for kids college?

21% of families will use retirement savings if needed. Americans seek to save $55,342 on average for their child's college expenses. On average, parents expect to pay roughly 30% of their child's college expenses. On average, parents actually pay 10% of their child's college expenses.

What is the 5 year rule for 529 plans?

There is a special rule in the Internal Revenue Code (IRC) specifically for 529 plan contributions (and select other qualified tuition programs). It allows a gift giver to make a lump sum contribution of up to five times the annual gift tax exclusion and spread it over five years.

What are the new rules for 529 plans in 2024?

“Starting in 2024, the SECURE 2.0 Act allows savers to roll unused 529 funds into the beneficiary's Roth IRA without a tax penalty,” says Lawrence Sprung, author of Financial Planning Made Personal and founder of Mitlin Financial in Hauppauge, New York.

What happens to 529 when child turns 21?

Their main advantage: 529 investments grow free from federal or state tax. While originally conceived as a way to save for college, 529 plan funds can now go to a wider array of programs and institutions. There are no age limits for recipients and money can be held in the plans indefinitely.

Can I move money from a 401k to a 529 without penalty?

You cannot transfer funds from a 401(k) or IRA into a 529 plan. Any distribution you take from your retirement plan for the purpose of depositing it into a 529 plan will be taxed and may also be subject to an early withdrawal penalty.

Is a mutual fund better than a 529?

Answer: Section 529 plans are often a more powerful tool than mutual funds because of the favorable federal tax treatment given to these plans. First of all, assets in a 529 are tax deferred. Plus, withdrawals from a 529 plan that are used to pay qualified education expenses avoid federal income tax.

Are 529 the best way to save for college?

Yes, a 529 plan is a great option to save enough money for college. There are tax benefits that are hard to compete against by the other college savings options because it was created to benefit those saving for education.