Leveraging 529 Accounts for Smart College Financial Planning

By Roxanne Martens, CFP®

The soaring cost of college education can feel like impending doom for parents. But hold on— help is available! Strategic college financial planning can help you navigate this challenge by utilizing a 529 account, a powerful savings vehicle specifically designed to help families prepare financially for college.

In this article, I share the valuable features of 529 accounts, discussing how to use them as tools in your college financial planning process.

Start Saving Now

The sooner you start saving for your child’s college fund, the better. The rewards of compound interest are yours to reap if you start early. 

Even if you can only contribute $40 a month, it’s still more than $0! Setting up automatic contributions is a smart way to be confident that you’re making a consistent contribution. Another option is to set aside additional funds from a bonus or raise and put them toward your child’s future. 

Learn About 529 Accounts

529 accounts are tax-efficient savings plans offered by states or educational institutions. They get their name from the Internal Revenue Code section that authorizes them. They have a special set of qualities that make them perfect for college savings:

• Investment versatility: With the range of investment possibilities provided by 529 plans, you can select an asset allocation that fits your timetable and risk tolerance. In addition, several professionally managed plans automatically adjust as your child nears college age.
• Tax efficiency: Many states (including Kansas and Arkansas!) offer tax deductions or credits for contributions to a 529 plan (be sure to consult your tax professional). In addition, as long as the funds are used for approved educational costs like tuition, fees, room and board, and even computers, the account’s earnings increase tax-free. 
• Contribution generosity: While contribution limits vary by state (Kansas is $325,000 and Arkansas is $366,000), most are generous and let you save a substantial sum over time. Certain states even offer extra incentives for state residents. 
• Flexibility: If your child chooses not to go to a four-year college, the good news is that you can still use your savings from a 529 account for other things. Account holders can use up to $10,000 annually on pre-college educational expenses, such as K-12 private or religious school tuition. You can also use your 529 savings to pay for apprenticeship fees or up to $10,000 of qualified student loan repayments (including those for the 529 plan recipient’s siblings).

Open a 529 Account

Opening a 529 account is fairly simple. Here are the essentials: 

• Plan selection: Review the 529 plans other states and your own state have to offer. Think about factors like performance history, investment possibilities, and expenses.
• Account start-up: Usually you can open an account online or through a financial advisor. You can designate a beneficiary—your child, for instance—and make payments online or with a check.
• Contributions: Choose a consistent contribution schedule that’s within your means. Contributions can be made automatically, which makes saving easy. Select an investing option based on your specific time horizon and risk tolerance.

Help Optimize Your 529 Account

While 529 accounts offer significant gains, there are more strategies you can utilize to make the most of them:

• Get started early: As mentioned earlier, the power of compound interest is on your side. Starting early lets your contributions grow considerably. Even small amounts saved on a regular basis can add up to enough to ease college costs.
• Think about gift contributions: You don’t have to be the sole contributor to your 529 account. Contributions to your child’s 529 account from grandparents, family, and friends can provide important financial support for their future education. Depending on the amount, these contributions may also be eligible for gift tax exclusions.
• Research qualified expenses: Remember, 529 funds aren’t just for tuition. Fees, lodging and board, and even computers and their associated technologies are considered qualified costs.

Important Changes for 2024

As of Jan. 1, 2024, new rules for 529 education savings plans permit unused funds to be rolled over into a Roth Individual Retirement Account (IRA). This change allows up to $35,000 to be transferred from a 529 plan to a Roth IRA over the beneficiary's lifetime without incurring taxes or penalties. Both types of accounts are funded with after-tax dollars.

How It Works

While this update is beneficial, there are specific guidelines to follow:

• Account Age: The 529 account must be open for at least 15 years.
• Annual Cap: Rollovers are limited to the annual IRA contribution limit each year.
• Eligible Funds: Only funds that have been in the 529 plan for a minimum of five years can be rolled over.
• Same Beneficiary: The Roth IRA owner must be the same person as the 529 plan beneficiary.

It's important to navigate these rules carefully when managing your 529 plan. For example, changing the beneficiary to another child or relative would reset the 15-year period. Additionally, as these regulations are new, further adjustments from Congress could occur, so stay informed about any potential changes.

The Bottom Line

529 plans are an effective way to provide your child with a stable financial future by laying a solid educational foundation. By being aware of their tax-efficient features, contribution options, investment flexibility, and possible uses, you can utilize 529 accounts to lessen the financial burden of college and feel confident your child has the tools they need to pursue their academic goals.

Remember, you can customize your 529 account plan to your unique situation and financial objectives by consulting with a financial advisor. Through smart planning and the utilization of 529 accounts, you can transform the intimidating challenge of college financial planning into an empowering journey.

Reach Out Today

If you feel daunted by the challenge of college financial planning, we’re here to help.

At CGN Advisors, we believe there is a different way—a better way—to approach financial planning and investment management. As a fee-only advisory firm headquartered in Manhattan, Kansas, with additional offices in Rogers, Arkansas, we pride ourselves on offering unbiased advice. 

To schedule a meeting, call our Manhattan, KS, office at (785) 340-3434 or our Rogers, AR, office at (479) 335-1034 or send us a message.

About Roxanne

Roxanne Martens is a CERTIFIED FINANCIAL PLANNERTM professional and serves as a Lead Financial Advisor on the team at CGN Advisors, a Fee-Only, financial advisory firm based in Manhattan, Kansas. Roxanne works out of CGN’s Arkansas location, serving clients in the Rogers, Bentonville, Springdale, and Fayetteville areas. An advisor since 2020, Roxanne primarily works with young professionals, helping them utilize their growing income efficiently, as well as those approaching retirement, helping them stay on track and facilitate strategic cash flows for when their routine paycheck stops. She enjoys using her skill set to educate and guide clients through life as they make financial decisions and set goals. Roxanne says, “Comprehensive financial planning and investment management takes a lot of trust from the client, and I don’t take that lightly. I genuinely want each of my clients to succeed.” Her favorite aspect of her role is connecting with clients on a personal level, providing clarity and peace, and being able to witness them realize their dreams.

Roxanne obtained her master’s degree in personal financial planning from Kansas State University and holds the CFP® designation. Prior to becoming a financial advisor, she taught in the Personal Financial Planning program at Kansas State University for seven years. As a mom with young children, most of her free time is spent with her husband, John, and two sons, Johnny and Judd. They enjoy living life outdoors—bike rides and spending time at the lake or pool. To learn more about Roxanne, connect with her on LinkedIn.

Investment advisory services are offered through CGN Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. 

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