Latest news with #529plans
Yahoo
24-05-2025
- Business
- Yahoo
I overfunded my kids' 529 plan — now I'm facing a punishing 10% penalty. Why I'd save less if I could go back
Imagine you're a diligent parent who, haunted by your own student debt, maxes out a 529 college savings plan for your kids every year to afford a pricey private college. Then life veers off script: Your kids picked more affordable in‑state schools, graduated early and even received help from a generous grandparent. 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 5 of the easiest ways you can catch up (and fast) Nervous about the stock market in 2025? Find out how you can access this $1B private real estate fund (with as little as $10) Two decades later, the 529 still bulges — largely from investment gains. Cashing out for non‑education expenses would trigger ordinary income tax plus a 10 % penalty on the earnings portion, according to the IRS. Now, you're asking the same question many savers face: How much is too much to save for your kids' college, and what are your options if you overshoot? Here's what you need to know about 529 plans and what to do with what's left over. A 529 plan is a tax‑advantaged investment account specifically for education costs. Anyone can open one and name a beneficiary (like a child, grandchild or even yourself). There are typically two types of 529 accounts: Savings and investment plan: You save money in a 529 investment account. Growth is tax-free if used for qualifying expenses. This is the most flexible plan, as it can be used for K-12, college and apprenticeships. Prepaid tuition plan: This plan locks in today's tuition rates, usually for in-state, public colleges, and is less flexible. There are several benefits of a 529 plan, including tax breaks and the ability to control investment options. You can also switch the beneficiaries of a 529 investment plan, too. For example, you can change it from yourself to your child, and then your niece or nephew, depending on how you plan to use the funds. However, there are also a few drawbacks. If you pull the money for non-educational expenses, you'll pay income tax plus a 10% penalty on the earnings. There is also some market risk. If the market crashes when your kids head to college, you could end up with less cash than expected. And there's a chance you won't need all the funds. So, what happens if there is money left over? There are a few ways to use it. First, you can save money and pull it out during your own retirement. Your income will be lower, so you'll pay less income taxes. You will still pay the 10% penalty, but remember, that is only on growth. Other options include: A Roth IRA rollover: Under SECURE 2.0, up to $35,000 of a 529 (held at least 15 years) can migrate to the beneficiary's Roth IRA, subject to annual IRA limits and income requirements. Other qualified training: Graduate school, trade programs, student‑loan repayment (up to $10,000 per lifetime) or even qualified international study count, too. Changing the beneficiary: Swap the account to cover college costs for another child in your family — a niece, nephew or even a grandchild down the line. Or, switch it to yourself and get that pottery certificate in Tuscany you've always dreamed of. (Just make sure it's eligible first.) Read more: This is how American car dealers use the '4-square method' to make big profits off you — and how you can ensure you pay a fair price for all your vehicle costs Consider using these strategies to hit the sweet spot — big enough to cover most costs, but small enough to sidestep penalties and wasted growth. Estimate the cost of four years at your state university, then add a small cushion (maybe 20 %). Adjust annually as tuition data updates. If your child ends up choosing a pricier school, you can cash‑flow the gap, apply for aid or take out student loans. This will prevent over-saving and give you more flexibility to save more for retirement or finance other goals. Ask grandparents and other family members if they plan to pay directly or fund their own 529 plan. It can be tough to have these conversations, and people may not know yet how much — or if — they can contribute. However, starting the discussion early can help you balance savings. Front‑loading (saving more when your children are very young) can turbocharge growth and reduce the risk of overfunding if plans change. Revisit the goal each year and decide how much is right to contribute. By high school, for example, you might realize your child is likely to attend a trade school, so you may readjust your contributions. Consider reshuffling the portfolio during each year of high school to mitigate risk. That locks in gains and shields you from a late‑cycle crash. Much like moving to reduce risk as you get closer to retirement, this helps protect your funds before you need them. Even with careful planning, you could end up oversaving. Make sure you have a plan now for where the funds will go. Leftover funds can be rolled to another relative, converted to an IRA for your kids, pay for your own training or used to bolster your retirement savings. Aim for moderation when funding a 529; save enough to cover a solid in‑state education, keep other savings on track and stay flexible. That way, you won't end up with a tax headache when those Ivy League dreams turn into a state school reality. 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 Rich, young Americans are ditching the stormy stock market — here are the alternative assets they're banking on instead Robert Kiyosaki warns of a 'Greater Depression' coming to the US — with millions of Americans going poor. But he says these 2 'easy-money' assets will bring in 'great wealth'. How to get in now Here are 5 'must have' items that Americans (almost) always overpay for — and very quickly regret. How many are hurting you? This article provides information only and should not be construed as advice. It is provided without warranty of any kind. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
New York Times
16-05-2025
- Business
- New York Times
Want a Gift for Opening a 529 College Savings Account?
If you're considering opening a 529 college savings account for your child, this may be the time to do it: Some state plans offer cash incentives in May. Many students are about to move from one phase of their education to the next, whether it's completing kindergarten or finishing middle school and moving on to high school. 'It's a time when people are thinking about education,' said Mary Morris, the chief executive of Virginia's Commonwealth Savers program and chair of the College Savings Plans Network, a group for 529 plan administrators. That's why 529 plans often promote perks now — to spur contributions. Offers range from modest matching gifts for opening or adding to an account to sweepstakes-style events dangling thousands of dollars in prizes. Recent stock market gyrations may have given some parents pause about investing. But if saving starts when children are young, there's time to ride out market swings. Richard Polimeni, managing director of education savings programs at Merrill and Bank of America, said he opened 529 accounts for his children soon after they were born. 'There's nothing that's even close to a 529 if saving for college is your primary goal,' he said. What is a 529 account? Named for a section of the tax code, state-sponsored 529 accounts are for saving or investing money for college costs and other educational expenses. Money in the accounts grows tax free. In addition, some states offer tax breaks for 529 contributions, though there is no federal tax deduction. Funds can be withdrawn tax free to pay for eligible spending on tuition, housing, food, books and supplies. (Withdrawals for nonqualifying costs are subject to income tax, plus a penalty.) At the end of 2024, there were about 17 million accounts holding $525 billion, or an average of nearly $31,000 each. What sort of cash incentives are we talking about? Pennsylvania's 529 College and Career Savings Program is offering savers the chance to win $5,529 for their college accounts if they deposit at least $10 during May. Six prizes will be awarded. West Virginia is holding a drawing to choose the winner of a $15,000 prize that will be deposited into a Smart529 account. Entries must be submitted before midnight on Friday. Alabama's CollegeCounts program is offering the chance to win a $529 contribution to accounts for babies born between May 29, 2024, and May 29 this year. And Utah's my529 plan is offering up to $40 in matching contributions for participants who open an account this month for a beneficiary new to the program. Contestants who submit a photo by May 29 of the person they're saving for will be entered into a drawing to win one of five contributions of $529 into an Indiana529 account. Virginia's offer, Ms. Morris said, will deposit $25 into Invest529 accounts that are opened on May 29. (An expanded list of state offers is available on the savings network's website.) The most effective way to save for college is generally to start early and make regular contributions while your child goes through school, said Liz Miller, a certified financial planner in Summit, N.J., and chair of the Certified Financial Planner Board of Standards, which sets standards for the financial planning profession. But if a state incentive or bonus can help savers get started, she said, that's a plus. Some states tie promotions to regular contributions. California's ScholarShare 529 program, for instance, is offering a $50 bonus to savers who open a new account between next Tuesday and May 31 — if they commit to making a monthly contribution of at least $50 for six months. How much does college cost these days? The average cost of attending college — including tuition, fees, housing and meals — ranges from $14,440 a year at a two-year community college to about $25,000 at a four-year, in-state university to almost $59,000 at a private, four-year college. Books, supplies and personal expenses are extra. (Those totals reflect 'sticker' prices published by colleges for the 2024-25 school year, but many students pay far less, after financial aid.) Why should I save in a 529 plan? With college costs being steep, the accounts can help families save for higher education and reduce borrowing, Ms. Morris said. The federal student loan system has recently been in turmoil, in part because the five-year pause on payments and collections, a legacy of the Covid-19 pandemic, ended. About a quarter of student borrowers who are currently required to make payments are considered delinquent, surpassing levels in early 2020 before the pandemic, the Federal Reserve Bank of New York reported on Tuesday. Borrowers who don't get back on track face forced collections and damaged credit scores, which can set them back financially. To avoid over-borrowing, students should aim to borrow no more than their anticipated annual salary upon graduation, said Mark Kantrowitz, a financial-aid expert. Ms. Morris suggested that families consider paying for college using this formula: Plan on paying for one-third out of current income earned by the family and the student; one-third through saving and investing, including a 529 plan; and a third through borrowing. Ms. Miller said she recommended that families consider a 'direct sold' 529 plan, which allows savers to enroll and select from a menu of investment options on their own. Some states also offer 'adviser sold' plans, in which a financial professional manages your account, but they tend to have higher fees. Can 529 accounts be used for more than paying for college? In recent years, tax law updates have made the accounts more flexible. They can also be used to pay tuition for kindergarten through high school, as well as for apprenticeships. In addition, up to $10,000 from a 529 can be used to repay the beneficiary's student loans. And under the federal law known as SECURE 2.0, up to $35,000 in a 529 account can be rolled over into a Roth individual retirement account for the beneficiary of the 529 account, if certain conditions are met. The Roth option helped some parents overcome concerns about saving in the account if their child decides not to attend college. Do I have to be a resident to qualify for a state's 529 incentives? You can open a 529 account in any state that offers one, even if you don't live there (although opening one in your own state may offer state-level tax breaks that can enhance your savings, Ms. Miller noted). Rules on promotions vary, however, so check the offer's details. California's offer is available to residents of all 50 states, and Ms. Morris said Virginia's bonus for May 29 contributions is open to anyone. Pennsylvania's offer is restricted to account owners who are residents of the state. They may, however, use the account to save for a beneficiary who lives in another state, such as a grandchild. Under a recently adopted change in financial aid rules, grandparents can save for a grandchild's college education without affecting the child's eligibility for financial aid.
