Latest news with #529plan
Globe and Mail
5 days ago
- Business
- Globe and Mail
529 Plans, 401(k) Plans, and Using Any Extra Money From Washington
In this podcast, Motley Fool personal finance expert Robert Brokamp speaks with Martha Kortiak Mert of about the newly expanded uses of 529s and how to choose the right plan for you. Also in this episode: Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » How does your 401(k) compare to the average worker's? Is it time to buy small-cap stocks? What you should do with any "raise" you'll receive from the "one big, beautiful bill." To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy. A full transcript is below. The $23,760 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these strategies. View the "Social Security secrets" » This podcast was recorded on July 25, 2025. Robert Brokamp: How should you choose 529 plan? How do you compare it to the average 401K participant? You're listening to the weekend Personal Finance edition of Motley Fool Money. I'm Robert Brokamp. We're doing a trial run of something a bit different for our Saturday episodes in which per usual, we feature a guest interview, and this week, I speak with Martha Kortiak Mert of about the newly expanded uses of 529's and how to choose the right plan for you. But then I'll also offer some other personal finance tidbits and tricks. Let's kick things off with three items from the news in a segment we're calling last week in Money. First up, they say that comparison is the thief of joy. But that doesn't stop us from doing it, especially when it comes to our bunny. If you're curious how your 401K behavior stacks up to the average workers, Vanguard has some answers, and it's recently released, How America Saves Report, based on analysis of all the retirement plans with the firm in 2024. Here are some highlights. The amount you have in your 401K is highly dependent on how long you've been contributing. Here are the median account balances based on job tenure. For people who have been on the job for 2-3 years, the median account balance is a bit more than $20,000, 4-6 years, a bit more than $44,000, 7-9, almost $73,000, and more than 10 years, almost $166,000. How much are workers contributing to their accounts? Well, the median savings rate is 6.8% just from the worker, and it's 11.5% when you include the employer match. Now, that's below the 15% savings rate that really most experts recommend nowadays, which means many folks might be behind in saving for retirement. Those workers might consider maxing out their accounts, and the limit this year is 23,500. Then when they turn 50, contributing even more with catchup contributions up to $7,500 or starting this year, 11,250 if you're 60-63 years old. What percentage of workers with Vanguard 401Ks took full advantage of their accounts last year? Well, 14% max out their accounts, and 16% of the 15 and older crowd made catch up contributions. Of course, it really doesn't matter how you compare to the average person. What really matters is whether you're on track to retire, when and how you want. To figure that out, you can start by using a good online calculator. One to consider is the CalcXML comprehensive retirement planning module. Just do an online search for it. You'll know you've found it if it has 606 as the last three numbers in its URL. Next item on our agenda, article from the Wall Street Journal, Jason Zweig, who highlighted the woes of small cap stocks. Over the past century, small caps have outperformed large caps by two percentage points annually on average, but not so much recently. In his article, Zweig cited the following staff from Steven DeSantis and Equity Strategist at Jeffrey's. Small caps have trailed large caps by more than seven percentage points over the last decade, which is the widest gap since 1935. Accordingly, money is just flowing out of ETFs that invested small US stocks while money is just pouring into the ETFs attract US large companies. This also means that small caps are a good bit cheaper. The Russell 2000 Index of small companies trades at a price to earnings multiple that is almost nine points lower than the S&P 500 PE. Iger argues, it might be time to go against the grade and grab some bargains by buying some small caps, which you can do pretty easily with a low cost ETF, such as the Vanguard Russell 2000 ETF, Ticker VTWO or the iShares CR S&P Small Cap ETF, Ticker IJR. Finally, we come to the number of the week, and that number is $435,300. That is the median price of an existing home that was sold in June an all time high, according to a report published last week by the International Association of Realtors, but while prices are up, sales volume is actually down 2.7%, and year over year inventory is up more than 15%. There's a bit of a slowdown in the real estate market. Growth of prices has boderated somewhat this year, and it took a bit of a dip in 2022. But anyone who owns a home that they bought more than a few years ago is likely sitting on some pretty nice gains. According to the Case Shiller National Home Price Index, home prices are up 49% over the past five years, 91% over the past decade, and 146% since the bottom of the housing crash in February of 2012. Putting a kid through college can easily cost well over $100,000. One way to prepare for that cost is by contributing to a 529 college savings plan. But how do you choose the right one? Here to provide some pointers is Martha Kortiak Mert, author and COO at Martha, welcome to Motley Fool Money. Martha Kortiak Mert: Hello. Thanks for having me. Robert Brokamp: The benefit of 529 savings plans is that the growth and withdrawals are tax free, as long as the money is used for qualified expenses, and that used to mean pretty much just college costs. But the list of qualified expenses just keeps growing, including this month, thanks to the big beautiful bill that was passed on July 4. Let's start by telling us a little bit about what a 529 can actually be used for. Martha Kortiak Mert: Sure thing, and you're right. That list is actually pretty long right now. Let's start with when your child is young. A few years ago, added to the list of qualified expenses was K-12 tuition. But with the passage of the one big beautiful bill, you now pay for a lot more than just tuition at the K-12 level. You can pay for curricular materials, online materials, private tutoring. You can also once your kid is in high school, you can pay for things like standardized tests, SAT exams, ACT. Those were things that people would often ask about, can I use my 529 plan to pay for this. Finally, the answer now is yes. At the K through 12 level, withdrawals have been limited to $10,000 per year per beneficiary. That is going up to $20,000 per year starting in January. That's just at the K-12 level. Then once you get post post secondary education, you can pay for college tuition, room and board, books, supplies, computers, software, things that you need for your course of study. But in addition, you can also pay for trade schools. You can pay for vocational education. Now you can pay for a range of credentialing and accreditations and continuing education as well. This can include things like welding certification programs, HVAC. There are a number of different programs that are now going to be considered eligible expenses for 529 plans, as well as, again, if you're in law school, if you study to become an accountant, any studies that you're doing for your certification or your accreditation, like a CPA exam or bar exam, you can also now use a 529 plan to pay for those exam fees as well as educational courses that you're doing for those exams. Robert Brokamp: A much broader range of uses. That might appealing to anyone who's listening to this, so they think, OK, I maybe should open a 529. The interesting thing is, though, they're unique. If you want to open an IRA, you'd have to decide, well, yeah, I can go to Schwab or Vanguard or Fidelity or whatever. But with 529, they're operated by states. You're like, well, do I go with Virginia or Utah or Alaska? How should someone go about choosing the right 529 for their student? Because you don't have to stick with your own states plan. Martha Kortiak Mert: No, absolutely. This creates a lot of confusion for people and it gives them a lot of choices, which can be a good thing, but sometimes too many choices makes things hard. For one thing, we suggest look at your states plan. Now almost 40 states offer some type of state tax benefit. Most of the time, you have to use your state's 529 plan to get the tax benefit, but not in all cases. Check if you are in a state where you have state income tax, check to see if your state offers a deduction or a credit for contributions that you make to a 529 plan and whether or not you have to use your own states plan to get that. If you are not in a state that offers a tax benefit, and even if you are in one that offers, check out and see, we actually have an article one our site that breaks us down how much is available and you can say, what's the actual benefit? You can see how much is that worth to you and look around and look at how different plans are rated. If you're in a state that maybe doesn't have the highest performing 529 plan. If your 529 plan doesn't offer some of the options that you'd be looking for to invest in, shop around, see what else is out there. There are close to 100, 529 plans of different kinds out there. About half of them or maybe a little over half are direct sold, meaning you can just go to the website and open those yourself. The remaining ones have to be opened for you by a financial advisor or broker. Robert Brokamp: You can transfer money from one 529 to another. Can you try to game the system? Can you like, I'm going to contribute to my state's mediocre plan to get that tax break, but then I'm going to transfer it to another 529, or is there a catch there somewhere? Martha Kortiak Mert: No catch. You can totally do that. The other thing that happens is people move states sometimes, so maybe you open your states plan for that tax benefit, then you move to another state. Depending where you're moving, you could transfer that money, or you can just keep it where it is and open a new 529 plan in that new state if that offers a tax benefit, as well. They're actually really flexible in that way. There's no reason that you only have to open one 529 plan if you have more than one child. It's probably a good idea to open a different one for each child. But for sure, you can max out your tax savings in your state tax benefit, and then open an additional one. Robert Brokamp: You mentioned ratings of 529 plans. A few people do it Morningstar does it, but you all do it at saving for as well. What are some of the criteria you use when it comes to how you've ranked and rated 529 plans? Martha Kortiak Mert: Yeah, let's start with the rankings, because that sort of feeds into our overall ratings, as well. Our rankings are an analysis we do of how all the 529 plans perform, so what their investment returns have been. Now, of course, within a 529 plan, you have multiple choices of how to invest your money. You can choose from portfolio options that are, give you age based or target year options. You choose the one that corresponds to your child's age or the expected age of enrollment in college, and those funds will shift over time from more aggressive type of investments to more conservative investments as your child nears college age. But they also offer different single fund and static blends and things like that. You do have quite a range of investment options. How do we compare the performance of one 529 plan to another 529 plan? We have to find a way to normalize those things. What we do is, in this case, we look just at the age based and year of enrollment portfolios, and we basically calculate an average across the age range. What would your average return be at any given point in time from 0-18 plus years of age? Then we compare that average performance for all the different plants. That's how we rank which are the best performing 529 plans. That performance component is definitely a big component for people. When we think about the rating and how we rate 529 plans, we want to be able to rate them based on which are the plans that are going to most help you as a parent, as a grandparent, ensure that you're reaching your goals for your child or your grandchild. Their performance is a big element of that, but we also think about things like saving success. That means, does the plan offer different types of features that will enable you to save more? This can include things like, does it have a gifting feature? How easy is it for you to if your parent have grandparents, family and friends on birthdays and holidays, make gift contributions into the 529 plan in lieu of a toy, for example. Ease of use. How easy is it to enroll in the plan? This is a place a lot of people drop off during the enrollment process because they really just get stuck. It's hard for them to figure out what these different options are that are being offered, and ultimately program delivery. How likely do we think it is that a 529 program manager is going to continue to deliver excellence to their investors? Those are some of the things we look at. We use both publicly available information, and we also survey all the 529 plan program administrators with a series of questions that they provide answers to us. Robert Brokamp: You mentioned various relatives there. Some people may wonder, well, how does a 529 affect my financial aid eligibility? It comes down really to ownership. Tell us a little bit about the different financial aid treatment when the parent owns it versus the kid or maybe another relative like the grandparent. Martha Kortiak Mert: A 529 plan is considered on the financial aid form, the FAFSA form that you fill out for federal financial aid. Whether it's owned by the parent or the student, it is considered a parent asset. A maximum of 5.64% of that asset value is included in the FAFSA form, ultimately. You put the full amount, but what's actually considered in the calculation is just up to 5.64%. Basically, if you're saving in any way, whether that money is in mutual funds or in a bank account, that's going to be considered at the same rate. If you can save, that's not a reason to not open a 529 plan. If a grandparent is considering whether to contribute to the parents 529 plan or to open their own, the good news for grandparents now is that a grandparent 529 is not considered for financial aid purposes. Now, in the past, it used to be withdrawals that you made from a grandparent 529 plan and then used to help the student were considered as untaxed student income. That was considered at a much higher rate, I think that was 20%. That has gone away. That untaxed income is no longer considered. Any cash support that's provided to the student from a grandparent or a family friend or other family member, that is not considered on the FAFSA. It does give an additional bump for grandparents that are trying to decide whether or not to open a 529 plan. The other thing to consider, too, or just to be aware of, really, if the parents are divorced, only one parent is filing the FAFSA form. That is the parent who provides most of the financial support to the student. If both parents have a 529 plan, the other parent, the 529 plan that they have for that same student would also not be reported on the FAFSA. Robert Brokamp: The whole grandparent thing, to me, feels like a huge loophole. It's basically completely ignored for financial aid purposes. Do you know why they made that change? Martha Kortiak Mert: I know that over time. I don't know exactly why that change was made. I know it was something, though, that had caused a lot of confusion over time. There was a whole strategy and loophole around how to use grandparent funds to pay for college without affecting financial aid, and so it used to be you would wait until the sophomore year to start withdrawing from a grandparent 529. There was a loophole there already, and a lot of people were aware of it, and that's gone away now, essentially, so I think made it a lot easier overall. Robert Brokamp: I say grandparent, but it's really anyone other than the parent doesn't have to be a grandparent. Let's move on to the final question. Are there any underappreciated or lesser known aspects of 529 accounts or just saving for college in general that you think more people should know about? Martha Kortiak Mert: Yeah. People are so concerned about what happens if I don't use it. I think especially in this day and age, where there is so much focus and emphasis on the value of a college degree, is it still worthwhile, especially given the student debt picture? A lot of people, they have a lot of uncertainty and trepidation around opening a 529 plan. For one thing, I do think that this expansion of benefits does help a lot because now you can say, look, your child is probably going to need something post high school, right, to make it in today's world. If that's not college, it's going to be something else. Really, there's not a great reason to not open a 529 plan. The other thing, we didn't really talk about, which I think people are aware of, but if you think about that tax benefit that you get of a 529 plan, we just focused on the state tax benefits. But of course, the really big benefit of a 529 plan is that those withdrawals that you're making come out federal tax free and state tax free. As long as it's being spent on qualified education expenses, we went through that list earlier. It's a pretty expansive list. That can add up to thousands of dollars. You could put the money in a mutual fund. You're going to be taxed along the way. In the case of a 529 plan, all that tax is deferred, and you are going to have to pay thousands of dollars every time you're taking withdrawals are. You're going to pay the capital gains tax rate, I should say. Depending on how much you have in there and how much you've earned over time, you're basically, you can't count on every dollar that you see in your account going to pay for college. With 529 plans, I think that's really the beauty of it that every dollar, when you go and look at your account statement online, every dollar that you see there can go toward education, and that's pretty huge. I think there are other flexibilities, you can transfer to another beneficiary if you end up. If you're in the enviable position of having more in your 529 plan than you need. The other actually pretty recent development that we didn't talk about that is huge is if you do end up with leftover money in your 529 plan. You can now transfer up to $35,000 to a Roth IRA for your beneficiary. You have to do it within the Roth IRA rules. You can only transfer so much up to the transfer limit each year. But that's a great way to jump start your kids retirement savings, as well. If you end up not spending or not spending all the money. I really encourage people to not delay, start early, put money away regularly. It's just I've heard from so many parents, friends of mine that say, I didn't get it. I didn't start saving until middle school, and I didn't understand the value of the compounding I would get if I'd started 10 years earlier, eight years earlier or something. You start early, you're going to use those funds one way or another. Robert Brokamp: Martha, this has been great. Thank you for joining us. Martha Kortiak Mert: Thank you so much. Robert Brokamp: It's time for our final segment. Get it done. In which we provide an actionable tip to make the boast of your bunny. A few weeks ago President Trump signed into law the one big beautiful bill, and there's a lot in that bill's 870 pages, including a higher standard deduction, a higher state and local taxes deduction, a bonus deduction for seniors, a higher child tax credit, and a deduction for tips received by some workers. But it's not all about the breaks. The bill also eventually eliminates energy efficiency tax credits, limits student loan repayment options, and make some cuts to social welfare programs. But hey, whalers get a higher deduction for whaling related expenses, so that's nice. In the end, how much the new tax law will reduce your tax bill will depend on all factors, including your income, job, your age, your address, things like that. But most middle to upper income households could see their after tax incomes rise 2-4% annually over the next few years. Think of it like a raise. With any raise, it's a good idea to be proactive about what you do with that extra money. My recommendation is to use most or even all of it to boost your savings rate, especially if you're behind in saving for retirement or any other goals. Right after you're done, listening to this podcast, log into your 401K, IRA, brokerage account, or your high yield savings account, and boost the amount that you have automatically contributed by a few percentage points. Because down the road, you may need that money. Estimates vary, but the big beautiful bill could increase the federal budget deficit by three trillion to $6 trillion over the next decade. Meanwhile, it could move up the depletion of the Social Security Trust Fund a year earlier to 2032, and around that same time, one of the trust funds that supports Medicare will run dry. In other words, over the next several years, the federal government will be borrowing even more money while two of its biggest and most important programs will become increasingly underfunded. Make the most of your tax cuts. Use that extra money to plump up your portfolio, because at some point, Uncle Sam is going to have to shore up Social Security, Medicare, and the rest of his finances, possibly resulting in higher future taxes and/or reduced retirement benefits. That's a show. What do you think of this new format for Saturday? Email your feedback to podcasts at That's a podcast with an s at As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. You see, our full advertising disclosure, please check out our show notes. I'm Robert Brokamp. Fool on, everybody.
Yahoo
5 days ago
- Business
- Yahoo
529 Plans, 401(k) Plans, and Using Any Extra Money From Washington
In this podcast, Motley Fool personal finance expert Robert Brokamp speaks with Martha Kortiak Mert of about the newly expanded uses of 529s and how to choose the right plan for you. Also in this episode: How does your 401(k) compare to the average worker's? Is it time to buy small-cap stocks? What you should do with any "raise" you'll receive from the "one big, beautiful bill." To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy. A full transcript is below. The $23,760 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these podcast was recorded on July 25, 2025. Robert Brokamp: How should you choose 529 plan? How do you compare it to the average 401K participant? You're listening to the weekend Personal Finance edition of Motley Fool Money. I'm Robert Brokamp. We're doing a trial run of something a bit different for our Saturday episodes in which per usual, we feature a guest interview, and this week, I speak with Martha Kortiak Mert of about the newly expanded uses of 529's and how to choose the right plan for you. But then I'll also offer some other personal finance tidbits and tricks. Let's kick things off with three items from the news in a segment we're calling last week in Money. First up, they say that comparison is the thief of joy. But that doesn't stop us from doing it, especially when it comes to our bunny. If you're curious how your 401K behavior stacks up to the average workers, Vanguard has some answers, and it's recently released, How America Saves Report, based on analysis of all the retirement plans with the firm in 2024. Here are some highlights. The amount you have in your 401K is highly dependent on how long you've been contributing. Here are the median account balances based on job tenure. For people who have been on the job for 2-3 years, the median account balance is a bit more than $20,000, 4-6 years, a bit more than $44,000, 7-9, almost $73,000, and more than 10 years, almost $166,000. How much are workers contributing to their accounts? Well, the median savings rate is 6.8% just from the worker, and it's 11.5% when you include the employer match. Now, that's below the 15% savings rate that really most experts recommend nowadays, which means many folks might be behind in saving for retirement. Those workers might consider maxing out their accounts, and the limit this year is 23,500. Then when they turn 50, contributing even more with catchup contributions up to $7,500 or starting this year, 11,250 if you're 60-63 years old. What percentage of workers with Vanguard 401Ks took full advantage of their accounts last year? Well, 14% max out their accounts, and 16% of the 15 and older crowd made catch up contributions. Of course, it really doesn't matter how you compare to the average person. What really matters is whether you're on track to retire, when and how you want. To figure that out, you can start by using a good online calculator. One to consider is the CalcXML comprehensive retirement planning module. Just do an online search for it. You'll know you've found it if it has 606 as the last three numbers in its URL. Next item on our agenda, article from the Wall Street Journal, Jason Zweig, who highlighted the woes of small cap stocks. Over the past century, small caps have outperformed large caps by two percentage points annually on average, but not so much recently. In his article, Zweig cited the following staff from Steven DeSantis and Equity Strategist at Jeffrey's. Small caps have trailed large caps by more than seven percentage points over the last decade, which is the widest gap since 1935. Accordingly, money is just flowing out of ETFs that invested small US stocks while money is just pouring into the ETFs attract US large companies. This also means that small caps are a good bit cheaper. The Russell 2000 Index of small companies trades at a price to earnings multiple that is almost nine points lower than the S&P 500 PE. Iger argues, it might be time to go against the grade and grab some bargains by buying some small caps, which you can do pretty easily with a low cost ETF, such as the Vanguard Russell 2000 ETF, Ticker VTWO or the iShares CR S&P Small Cap ETF, Ticker IJR. Finally, we come to the number of the week, and that number is $435,300. That is the median price of an existing home that was sold in June an all time high, according to a report published last week by the International Association of Realtors, but while prices are up, sales volume is actually down 2.7%, and year over year inventory is up more than 15%. There's a bit of a slowdown in the real estate market. Growth of prices has boderated somewhat this year, and it took a bit of a dip in 2022. But anyone who owns a home that they bought more than a few years ago is likely sitting on some pretty nice gains. According to the Case Shiller National Home Price Index, home prices are up 49% over the past five years, 91% over the past decade, and 146% since the bottom of the housing crash in February of 2012. Putting a kid through college can easily cost well over $100,000. One way to prepare for that cost is by contributing to a 529 college savings plan. But how do you choose the right one? Here to provide some pointers is Martha Kortiak Mert, author and COO at Martha, welcome to Motley Fool Money. Martha Kortiak Mert: Hello. Thanks for having me. Robert Brokamp: The benefit of 529 savings plans is that the growth and withdrawals are tax free, as long as the money is used for qualified expenses, and that used to mean pretty much just college costs. But the list of qualified expenses just keeps growing, including this month, thanks to the big beautiful bill that was passed on July 4. Let's start by telling us a little bit about what a 529 can actually be used for. Martha Kortiak Mert: Sure thing, and you're right. That list is actually pretty long right now. Let's start with when your child is young. A few years ago, added to the list of qualified expenses was K-12 tuition. But with the passage of the one big beautiful bill, you now pay for a lot more than just tuition at the K-12 level. You can pay for curricular materials, online materials, private tutoring. You can also once your kid is in high school, you can pay for things like standardized tests, SAT exams, ACT. Those were things that people would often ask about, can I use my 529 plan to pay for this. Finally, the answer now is yes. At the K through 12 level, withdrawals have been limited to $10,000 per year per beneficiary. That is going up to $20,000 per year starting in January. That's just at the K-12 level. Then once you get post post secondary education, you can pay for college tuition, room and board, books, supplies, computers, software, things that you need for your course of study. But in addition, you can also pay for trade schools. You can pay for vocational education. Now you can pay for a range of credentialing and accreditations and continuing education as well. This can include things like welding certification programs, HVAC. There are a number of different programs that are now going to be considered eligible expenses for 529 plans, as well as, again, if you're in law school, if you study to become an accountant, any studies that you're doing for your certification or your accreditation, like a CPA exam or bar exam, you can also now use a 529 plan to pay for those exam fees as well as educational courses that you're doing for those exams. Robert Brokamp: A much broader range of uses. That might appealing to anyone who's listening to this, so they think, OK, I maybe should open a 529. The interesting thing is, though, they're unique. If you want to open an IRA, you'd have to decide, well, yeah, I can go to Schwab or Vanguard or Fidelity or whatever. But with 529, they're operated by states. You're like, well, do I go with Virginia or Utah or Alaska? How should someone go about choosing the right 529 for their student? Because you don't have to stick with your own states plan. Martha Kortiak Mert: No, absolutely. This creates a lot of confusion for people and it gives them a lot of choices, which can be a good thing, but sometimes too many choices makes things hard. For one thing, we suggest look at your states plan. Now almost 40 states offer some type of state tax benefit. Most of the time, you have to use your state's 529 plan to get the tax benefit, but not in all cases. Check if you are in a state where you have state income tax, check to see if your state offers a deduction or a credit for contributions that you make to a 529 plan and whether or not you have to use your own states plan to get that. If you are not in a state that offers a tax benefit, and even if you are in one that offers, check out and see, we actually have an article one our site that breaks us down how much is available and you can say, what's the actual benefit? You can see how much is that worth to you and look around and look at how different plans are rated. If you're in a state that maybe doesn't have the highest performing 529 plan. If your 529 plan doesn't offer some of the options that you'd be looking for to invest in, shop around, see what else is out there. There are close to 100, 529 plans of different kinds out there. About half of them or maybe a little over half are direct sold, meaning you can just go to the website and open those yourself. The remaining ones have to be opened for you by a financial advisor or broker. Robert Brokamp: You can transfer money from one 529 to another. Can you try to game the system? Can you like, I'm going to contribute to my state's mediocre plan to get that tax break, but then I'm going to transfer it to another 529, or is there a catch there somewhere? Martha Kortiak Mert: No catch. You can totally do that. The other thing that happens is people move states sometimes, so maybe you open your states plan for that tax benefit, then you move to another state. Depending where you're moving, you could transfer that money, or you can just keep it where it is and open a new 529 plan in that new state if that offers a tax benefit, as well. They're actually really flexible in that way. There's no reason that you only have to open one 529 plan if you have more than one child. It's probably a good idea to open a different one for each child. But for sure, you can max out your tax savings in your state tax benefit, and then open an additional one. Robert Brokamp: You mentioned ratings of 529 plans. A few people do it Morningstar does it, but you all do it at saving for as well. What are some of the criteria you use when it comes to how you've ranked and rated 529 plans? Martha Kortiak Mert: Yeah, let's start with the rankings, because that sort of feeds into our overall ratings, as well. Our rankings are an analysis we do of how all the 529 plans perform, so what their investment returns have been. Now, of course, within a 529 plan, you have multiple choices of how to invest your money. You can choose from portfolio options that are, give you age based or target year options. You choose the one that corresponds to your child's age or the expected age of enrollment in college, and those funds will shift over time from more aggressive type of investments to more conservative investments as your child nears college age. But they also offer different single fund and static blends and things like that. You do have quite a range of investment options. How do we compare the performance of one 529 plan to another 529 plan? We have to find a way to normalize those things. What we do is, in this case, we look just at the age based and year of enrollment portfolios, and we basically calculate an average across the age range. What would your average return be at any given point in time from 0-18 plus years of age? Then we compare that average performance for all the different plants. That's how we rank which are the best performing 529 plans. That performance component is definitely a big component for people. When we think about the rating and how we rate 529 plans, we want to be able to rate them based on which are the plans that are going to most help you as a parent, as a grandparent, ensure that you're reaching your goals for your child or your grandchild. Their performance is a big element of that, but we also think about things like saving success. That means, does the plan offer different types of features that will enable you to save more? This can include things like, does it have a gifting feature? How easy is it for you to if your parent have grandparents, family and friends on birthdays and holidays, make gift contributions into the 529 plan in lieu of a toy, for example. Ease of use. How easy is it to enroll in the plan? This is a place a lot of people drop off during the enrollment process because they really just get stuck. It's hard for them to figure out what these different options are that are being offered, and ultimately program delivery. How likely do we think it is that a 529 program manager is going to continue to deliver excellence to their investors? Those are some of the things we look at. We use both publicly available information, and we also survey all the 529 plan program administrators with a series of questions that they provide answers to us. Robert Brokamp: You mentioned various relatives there. Some people may wonder, well, how does a 529 affect my financial aid eligibility? It comes down really to ownership. Tell us a little bit about the different financial aid treatment when the parent owns it versus the kid or maybe another relative like the grandparent. Martha Kortiak Mert: A 529 plan is considered on the financial aid form, the FAFSA form that you fill out for federal financial aid. Whether it's owned by the parent or the student, it is considered a parent asset. A maximum of 5.64% of that asset value is included in the FAFSA form, ultimately. You put the full amount, but what's actually considered in the calculation is just up to 5.64%. Basically, if you're saving in any way, whether that money is in mutual funds or in a bank account, that's going to be considered at the same rate. If you can save, that's not a reason to not open a 529 plan. If a grandparent is considering whether to contribute to the parents 529 plan or to open their own, the good news for grandparents now is that a grandparent 529 is not considered for financial aid purposes. Now, in the past, it used to be withdrawals that you made from a grandparent 529 plan and then used to help the student were considered as untaxed student income. That was considered at a much higher rate, I think that was 20%. That has gone away. That untaxed income is no longer considered. Any cash support that's provided to the student from a grandparent or a family friend or other family member, that is not considered on the FAFSA. It does give an additional bump for grandparents that are trying to decide whether or not to open a 529 plan. The other thing to consider, too, or just to be aware of, really, if the parents are divorced, only one parent is filing the FAFSA form. That is the parent who provides most of the financial support to the student. If both parents have a 529 plan, the other parent, the 529 plan that they have for that same student would also not be reported on the FAFSA. Robert Brokamp: The whole grandparent thing, to me, feels like a huge loophole. It's basically completely ignored for financial aid purposes. Do you know why they made that change? Martha Kortiak Mert: I know that over time. I don't know exactly why that change was made. I know it was something, though, that had caused a lot of confusion over time. There was a whole strategy and loophole around how to use grandparent funds to pay for college without affecting financial aid, and so it used to be you would wait until the sophomore year to start withdrawing from a grandparent 529. There was a loophole there already, and a lot of people were aware of it, and that's gone away now, essentially, so I think made it a lot easier overall. Robert Brokamp: I say grandparent, but it's really anyone other than the parent doesn't have to be a grandparent. Let's move on to the final question. Are there any underappreciated or lesser known aspects of 529 accounts or just saving for college in general that you think more people should know about? Martha Kortiak Mert: Yeah. People are so concerned about what happens if I don't use it. I think especially in this day and age, where there is so much focus and emphasis on the value of a college degree, is it still worthwhile, especially given the student debt picture? A lot of people, they have a lot of uncertainty and trepidation around opening a 529 plan. For one thing, I do think that this expansion of benefits does help a lot because now you can say, look, your child is probably going to need something post high school, right, to make it in today's world. If that's not college, it's going to be something else. Really, there's not a great reason to not open a 529 plan. The other thing, we didn't really talk about, which I think people are aware of, but if you think about that tax benefit that you get of a 529 plan, we just focused on the state tax benefits. But of course, the really big benefit of a 529 plan is that those withdrawals that you're making come out federal tax free and state tax free. As long as it's being spent on qualified education expenses, we went through that list earlier. It's a pretty expansive list. That can add up to thousands of dollars. You could put the money in a mutual fund. You're going to be taxed along the way. In the case of a 529 plan, all that tax is deferred, and you are going to have to pay thousands of dollars every time you're taking withdrawals are. You're going to pay the capital gains tax rate, I should say. Depending on how much you have in there and how much you've earned over time, you're basically, you can't count on every dollar that you see in your account going to pay for college. With 529 plans, I think that's really the beauty of it that every dollar, when you go and look at your account statement online, every dollar that you see there can go toward education, and that's pretty huge. I think there are other flexibilities, you can transfer to another beneficiary if you end up. If you're in the enviable position of having more in your 529 plan than you need. The other actually pretty recent development that we didn't talk about that is huge is if you do end up with leftover money in your 529 plan. You can now transfer up to $35,000 to a Roth IRA for your beneficiary. You have to do it within the Roth IRA rules. You can only transfer so much up to the transfer limit each year. But that's a great way to jump start your kids retirement savings, as well. If you end up not spending or not spending all the money. I really encourage people to not delay, start early, put money away regularly. It's just I've heard from so many parents, friends of mine that say, I didn't get it. I didn't start saving until middle school, and I didn't understand the value of the compounding I would get if I'd started 10 years earlier, eight years earlier or something. You start early, you're going to use those funds one way or another. Robert Brokamp: Martha, this has been great. Thank you for joining us. Martha Kortiak Mert: Thank you so much. Robert Brokamp: It's time for our final segment. Get it done. In which we provide an actionable tip to make the boast of your bunny. A few weeks ago President Trump signed into law the one big beautiful bill, and there's a lot in that bill's 870 pages, including a higher standard deduction, a higher state and local taxes deduction, a bonus deduction for seniors, a higher child tax credit, and a deduction for tips received by some workers. But it's not all about the breaks. The bill also eventually eliminates energy efficiency tax credits, limits student loan repayment options, and make some cuts to social welfare programs. But hey, whalers get a higher deduction for whaling related expenses, so that's nice. In the end, how much the new tax law will reduce your tax bill will depend on all factors, including your income, job, your age, your address, things like that. But most middle to upper income households could see their after tax incomes rise 2-4% annually over the next few years. Think of it like a raise. With any raise, it's a good idea to be proactive about what you do with that extra money. My recommendation is to use most or even all of it to boost your savings rate, especially if you're behind in saving for retirement or any other goals. Right after you're done, listening to this podcast, log into your 401K, IRA, brokerage account, or your high yield savings account, and boost the amount that you have automatically contributed by a few percentage points. Because down the road, you may need that money. Estimates vary, but the big beautiful bill could increase the federal budget deficit by three trillion to $6 trillion over the next decade. Meanwhile, it could move up the depletion of the Social Security Trust Fund a year earlier to 2032, and around that same time, one of the trust funds that supports Medicare will run dry. In other words, over the next several years, the federal government will be borrowing even more money while two of its biggest and most important programs will become increasingly underfunded. Make the most of your tax cuts. Use that extra money to plump up your portfolio, because at some point, Uncle Sam is going to have to shore up Social Security, Medicare, and the rest of his finances, possibly resulting in higher future taxes and/or reduced retirement benefits. That's a show. What do you think of this new format for Saturday? Email your feedback to podcasts at That's a podcast with an s at As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. You see, our full advertising disclosure, please check out our show notes. I'm Robert Brokamp. Fool on, everybody. Robert Brokamp has positions in iShares Trust-iShares Core S&P Small-Cap ETF. The Motley Fool has positions in and recommends iShares Trust-iShares Core S&P Small-Cap ETF. The Motley Fool has a disclosure policy. 529 Plans, 401(k) Plans, and Using Any Extra Money From Washington was originally published by The Motley Fool Sign in to access your portfolio
Yahoo
7 days ago
- Business
- Yahoo
The 529 Plan Blind Spot: Why Millions Of Parents Are Missing Out On Tax-Free College Savings
It's no secret that raising kids is a major financial commitment. Among the more common financial concerns parents have is the ability to help fund a child's education. The cost of higher education has skyrocketed over the last two decades, leaving many feeling unable to predict how much they need to put away to make a dent in the total. Knowing how to save for that cost is also a concern for many. A new study conducted by The Harris Poll on behalf of Intuit Credit Karma found that 66% of parents are saving in some way for their children's future educational costs. About 65% of parents say they are putting money away in a type of savings account, but just 24% are using a 529 plan. Don't Miss: 'Scrolling To UBI' — Deloitte's #1 fastest-growing software company allows users to earn money on their phones. You can Accredited Investors: Grab Pre-IPO Shares of the AI Company Powering Hasbro, Sephora & MGM— A 529 plan is a tax-advantaged savings account that can be used to pay for educational expenses. These accounts can be leveraged at all stages of a child's life, from K-12 tuition to college, vocational and technical schools, internships, and even student loan repayment. Experts widely agree that 529 plans are among the best ways to save for educational expenses. Perhaps ironically, a lack of education seems to be the driving factor behind the underutilization of 529 plans. According to the study, 43% of parents aren't using a 529 plan because they have never heard of them or don't know what they are. Other reasons for the 529 plan blind spot include the desire for more flexible savings options (17%), concerns about the plans impacting financial aid (14%), concerns about the future of higher education (18%), and worries over the state of student loan debt (16%). Trending: $100k+ in investable assets? – no cost, no obligation. However, just because a parent isn't aware of, or isn't using, a 529 plan, that doesn't mean they aren't preparing for the future. In the study, parents reported a handful of other ways they are planning to handle potential higher education costs, like helping their children apply for scholarships and grants (34%), recommending community college starts (29%), or preparing their kids to take on debt in their own names (22%). Many parents also signified that they'd use their own resources to help a child finance higher education. Nearly one-third report that they're prepared to dip into savings or investments to cover the cost. While 14% say they'd refinance their homes, 19% will take on student loan debt in their own name, and 13% will re-work retirement contributions to come up with the money. On the other end of the spectrum, 34% of parents say they aren't saving for their children's future education at all. Most of the time, that's because they simply can't afford to (67%) or because they feel like it's too early to start (25%)."Raising children is expensive, especially when it comes to education-related costs, which can be among the largest and most unpredictable expenses families face," Intuit Credit Karma Consumer Financial Advocate Courtney Alev said in a statement. "It's crucial for parents to start saving for their children's future, if they can." "Even small, regular contributions can grow substantially over time," she said. "While there is no one-size-fits-all approach to saving, exploring options like 529 plans can be beneficial... Ultimately, how parents choose to save depends on their goals and preferences, but understanding all the available accounts and tools available can help them make the most informed decisions for their children's future." Read Next: The average American couple has saved this much money for retirement —? Image: Shutterstock Up Next: Transform your trading with Benzinga Edge's one-of-a-kind market trade ideas and tools. Click now to access unique insights that can set you ahead in today's competitive market. Get the latest stock analysis from Benzinga? APPLE (AAPL): Free Stock Analysis Report TESLA (TSLA): Free Stock Analysis Report This article The 529 Plan Blind Spot: Why Millions Of Parents Are Missing Out On Tax-Free College Savings originally appeared on © 2025 Benzinga does not provide investment advice. All rights reserved. Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
Forbes
27-07-2025
- Business
- Forbes
How The Big Beautiful Bill Changed 529 Plans For The Better
University student, woman and outdoor for graduation with memory, smile or thinking or achievement ... More at campus. Girl, Japanese person and graduate with memory, decision or choice for future at college We've been saving into a 529 plan quite aggressively since the birth of our first child over ten years ago. As we had more kids, we continued to make these contributions because you can always change the beneficiary of a 529 plan without penalty. If our first child didn't end up needing it, our backup plan was to change the beneficiary to our second. With how much college costs these days, and will likely increase in the next decade, chances are our 529 plans were going to be emptied. If you don't have four kids, the idea of putting too much into a 529 plan is a big risk. A good risk but a big one nonetheless. But when the SECURE Act 2.0 was signed into law, it changed everything. There's now no risk to funding a 529 plan. 529 Plans Can Be Rolled into Roth IRAs The big headline change was that, subject to state laws, you can now roll over up to $35,000 of unused 529 plan funds into a Roth IRA for the beneficiary. There is no tax and no penalty if you follow certain conditions: This means you can contribute more into a 529 plan knowing that $35,000 of unused funds could eventually be moved into a Roth IRA. 529 Plans Are More Versatile Than I Remembered The ability to rollover unused 529 plan funds was the only major change in SECURE Act 2.0, there were additional changes to 529 plans that you may have missed. There were three major changes by SECURE Act back in 2019 and the Tax Cuts and Jobs Act of 2017. 529 Plans can now be used to cover K-12 tuition of up to $10,000 per student as long as your state allows it. Previously, you couldn't use it for K-12. The SECURE Act of 2019 made it possible for you to use 529 plan funds to pay for apprenticeship program expenses, with no cap, as long as the program is listed with the U.S. Department of Labor. This includes fees, books, supplies, and any other required equipment. Finally, you can now use up to $10,000 of 529 plan funds to pay for qualified student loans per person. The $10,000 is a lifetime limit that applies to the beneficiary and each of their siblings. Also, the interest paid with 529 plan funds isn't tax deductible. With the cost of college higher than ever, increasing the versatility of 529 plans helps more people pay for college.
Yahoo
19-07-2025
- Business
- Yahoo
I've loaded my daughter's 529 plan for years — but now suddenly she wants to skip college. I'm mad. What now?
You've spent years saving diligently for your daughter's education, only to learn she's decided not to go away to college after all. If you have thousands stashed in a 529 plan, you might be wondering: What happens to that money now? At the end of 2024, roughly 17 million 529 plan accounts were open in the United States, worth a collective $525 billion in total assets. A 529 plan remains one of the most flexible education savings tools available, but it's also one of the most misunderstood. That's because even if plans change, 529 college plan funds can end up being used for things that have nothing to do with traditional notions of higher education. If it involves learning, there's a solid chance your 529 savings can help cover related expenses. "It's important for Americans to understand how flexible 529 plans have become,' said Andy Esser, a financial advisor Andy Esser at Edward Jones, which issued a report in May that found 52% of respondents said they didn't know what 529 plans are. Don't miss Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how I'm 49 years old and have nothing saved for retirement — what should I do? Don't panic. Here are 6 of the easiest ways you can catch up (and fast) Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan 'works every single time' to kill debt, get rich in America — and that 'anyone' can do it What is a 529 plan and how does it work? Named after Section 529 of the Internal Revenue Code, 529 plans are tax-advantaged saving plans for future education costs. They come in two main types: prepaid tuition plans and education savings plans. The plans typically involve contributing after-tax dollars and any investment growth is tax-free as long as withdrawals are used for qualified education expenses. These plans were created to make saving for college more attractive by reducing the sting of taxes on those savings. Typically, families use 529 money to pay tuition, fees, room and board, books — even certain technology costs at eligible institutions. In recent years, the definition of qualified expenses has expanded: You can also use up to $10,000 per year for K–12 tuition at private schools and even make limited payments toward student loans. The catch: If you use the money for anything that doesn't qualify, you'll owe ordinary income tax on the earnings portion of the withdrawal plus a 10% penalty, seriously eroding the value of your savings. What happens if your child doesn't go away for college? If your daughter isn't heading off to a four-year college campus, your first step is to figure out whether she's forgoing higher education entirely or simply choosing another path. The good news is that 'qualified education expenses' don't just mean traditional, residential college costs. If she's planning to attend a local community college, a trade school, or even take classes online from an accredited institution, you can still use 529 funds to cover tuition and other eligible expenses without penalty. Many families don't realize that accredited vocational and technical schools are also fair game for 529 plans. Even if she commutes from home, her tuition and fees may be covered. If she's decided to study part-time, you can still use the funds proportionally for eligible costs. Some families find that room and board expenses aren't needed if their student is living at home, but tuition, books and required supplies continue to qualify. Read more: Americans are 'revenge saving' to survive — but millions only get a measly 1% on their savings. What exactly are qualified education expenses? Qualified expenses include tuition and fees at eligible institutions, books and supplies required by the program, certain technology costs (like a computer or software, if it's required) and room and board for students enrolled at least half-time. For K-12 education, you can withdraw up to $10,000 per year per student for tuition at private or religious schools. There's also a provision that allows up to $10,000 lifetime per beneficiary to pay down qualifying student loans. This all means that if your daughter is still interested in some form of learning, just not in the way you initially planned for, you may be able to spend most or all of the 529 balance penalty-free. What if your child opts not to pursue formal education at all? Let's say your daughter has decided to forgo college, trade school, or any eligible training program altogether. You still have options. You can leave the money in the 529 account indefinitely. There's no rule that says the funds must be used short-term. The account can keep growing tax-free. Your daughter might change her mind in the future — even as an adult. You can also change the beneficiary of the 529 plan and transfer the funds to another child, a niece or nephew, yourself, or even a future grandchild without triggering taxes or penalties, as long as the new beneficiary is a qualifying family member. If none of these options work for you, consider rolling some of the unused funds into a Roth IRA for your daughter. Thanks to recent rule changes, up to $35,000 of unused 529 funds can be rolled over to a Roth IRA in the beneficiary's name over their lifetime, starting in 2024, subject to annual contribution limits and eligibility rules. This can turn unused education savings into retirement savings — a smart long-term play. Lastly, if you decide to take the money out for non-education expenses — say, buying a car or making home improvements — you'll face that 10% penalty and pay ordinary income tax on the earnings portion. Only your original contributions come out tax-free, as you already paid tax on them. That could make non-qualified withdrawals the option of last resort. What to read next Robert Kiyosaki warns of 'massive unemployment' in the US due to the 'biggest change' in history — and says this 1 group of 'smart' Americans will get hit extra hard. Are you one of them? How much cash do you plan to keep on hand after you retire? Here are 3 of the biggest reasons you'll need a substantial stash of savings in retirement Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? Stay in the know. Join 200,000+ readers and get the best of Moneywise sent straight to your inbox every week for free. This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Sign in to access your portfolio
