Latest news with #529plans
Forbes
4 hours ago
- Business
- Forbes
Why More Employers Are Adding 529 College Savings Plans
Years ago, I helped sign up one of the earliest corporate college savings '529' plans here in Southern California. It enabled a large entertainment-industry company to help their employees take advantage of this very popular way of saving for their kids' higher education. Parents loved this long term savings program, conveniently offered at work. Why 529s are growing in popularity: Employers are increasingly adding 529 college savings plans to their benefits packages. These tax-advantaged plans help employees save for education costs—from K-12 tuition to college and job training to apprenticeships. The federal SECURE 2.0 Act (effective in 2024) introduced major enhancements, including allowing certain unused 529 funds to be rolled into a Roth IRA. With student debt at record levels and talent retention a top HR concern, 529 plans offer a strategic, future-focused benefit that supports both financial wellness and workforce stability. The 4-1-1 on 529s: A 529 plan is a state-sponsored, tax-advantaged savings account for education expenses. There are no taxes on investment gains while funds grow. And withdrawals are tax free for qualified higher-education expenses. Considered a parental asset, they affect financial aid eligibility by just 5.(college, K-12 tuition, a parental asset, they have minimal effect on financial aid eligibility. One type, a prepaid tuition plan, locks in future tuition rates at today's costs. Another type, an education savings plan, is investment based and is popular among businesses and families. Why should businesses care now? Offering a 529 plan can be a powerful recruitment and retention too as employees, especially Millennials and Gen Z — are seeking financial wellness benefits. Education costs (for themselves or their children) are a top concern, and 529 support is increasingly viewed as a compelling, family-focused benefit. Moreover, employees now can roll over unused 529 plans (up to a $35,000 lifetime) into a Roth IRA, provided the 529 has been open for at least 15 years. (Certain other conditions apply, so check with your employer or your financial advisor before attempting a rollover.) The Roth rollover options adds long-term value and flexibility—eliminating the fear of 'wasting' funds if a beneficiary doesn't go to college. The Employer Contribution feature: Employers may contribute directly to an employee's 529 account, facilitate payroll deductions (employee-funded, employer-enabled),offer matching contributions (e.g., $100/month) or seed funding (e.g., $250 at onboarding or birth of a child). Employer contributions are generally treated as taxable income to the employee unless your state offers an exemption. Contributions are not deductible at the federal level, but over 30 states offer state-level deductions or credits. Some states (e.g., Indiana, Illinois, Colorado) offer employer tax credits, such as Indiana's credit of up to $1,500 annually. Important: Employers should clearly communicate any tax implications to employees during onboarding or benefits education. What's in it for employers? Offering a 529 plan helps an employer stand out in a competitive hiring market, support employee family financial goals and promote financial wellness, which promotes reduced stress and higher productivity. The plans are low cost, especially when structured as employee-funded and provide the option of combining with student loan repayment assistance. How to implement it: Choose a 529 provider from among a range of state-sponsored plans or national platforms. Decide on your contribution model: match employee contributions monthly or offer one-time seed money. Use direct deposit or third-party services (such as Gradifi, Paidly) to automate via payroll. Promote your program clearly, use HRIS data or surveys to measure engagement and tailor the program. And leverage voluntary models (Some states offer turnkey, no-admin options for employers (e.g., Colorado's CollegeInvest). Taxing and compliance implications: There is no federal deduction, but check for state-level benefits.'Parity states' like Arizona, Kansas, and Pennsylvania allow tax breaks for contributions to any state's 529 plan. There is a Gift tax exclusion for 2025: $19,000 per beneficiary ($38,000 for married couples)—useful for business owners and execs using 529s as part of wealth or estate planning. Post-tax contributions made via payroll are generally not subject to FICA. Note: Always consult a tax advisor or benefits attorney to ensure compliance with federal and state laws. Some common misconceptions about 529 plans: False: '529 plans are just for parents.' Fact: Anyone—including business owners—can open or contribute to a 529 for employees, family, or estate planning. False: 'Employer contributions are tax-free for employees Fact::They're usually taxable income unless a state exemption applies. False: 'We must use our state's plan.' Fact: Not always. Parity states offer tax breaks for contributions to any plan. False: 'If the child doesn't attend college, the money is wasted.' Fact: The money can be used for other forms of post-secondary education, such as trade school. And, thanks to SECURE 2.0, unused funds can be rolled into a Roth IRA (up to $35,000). False: 'It's too complex to manage.' Fact: Today's platforms and state programs make implementation simple—even for small businesses. False: 'If we can't afford matching, it's not worth it. Fact: Just facilitating payroll deductions and educating employees adds real value. Future trends and strategic positioning: Education savings is becoming a top-tier benefit, on par with health insurance and 401(k) and Gen Z—now dominant in the workforce—want support for family-building and debt reduction. 529s will increasingly integrate with financial wellness platforms, alongside HSAs, 401(k)s, and student loan repayment. States are likely to expand incentives and portability to encourage employer to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
Yahoo
06-07-2025
- Business
- Yahoo
Trump tax bill brings some big changes to 529 plans
529 education savings plans are getting a major upgrade under President Trump's massive tax bill, particularly for parents looking to stash away cash for K-12 expenses. First, a quick overview: 529 plans allow anyone — not just parents — to set aside money in an investment account for certain education expenses. Earnings aren't subject to federal taxes, and withdrawals are similarly tax-free if the money is spent on a qualified category. The savings plans are typically thought of as being for college students, but they benefit young children too. Right now, due to changes first made in Trump's 2017 tax bill, parents can withdraw up to $10,000 each year to pay for K-12 tuition costs. The new legislation bumps up that benefit even more, allowing up to $20,000 in annual withdrawals while widening the definition of 'qualified expenses' in K-12 to include non-tuition categories like books, tutoring, standardized testing fees, educational therapies for children with disabilities, and more. Certain professional credential fees will also now be covered as qualified expenses. For example, Andy Whitehair, a director with the advisory, tax, and assurance firm Baaker Tilly, noted that CPAs like him could tap 529 funds to cover things like exams and licensing costs. That means 529 plans are now much more than just a college savings vehicle. 'You're expanding the eligible expenses that you can pay out of this, so I think that just inherently is going to make them more useful,' Whitehair said. Elyse Germack, an attorney and CPA who does tax and estate planning in Birmingham, Mich., agreed that the wider perks will help parents pay for K-12 costs. 'Many families are interested in having greater options for use of funds, especially when it comes to K-12, and having the ability to pay for private school along with public school-type expenses would be very helpful,' Germack said. Still, the upgrades will only reach those who are both aware of the plans and have the ability to contribute to them, meaning lower-income families will likely be left out. Patricia McCoy, a professor at Boston College Law School, wrote in a recent Substack post that 529 plans "primarily are used as tax shelters by the top 10 percent." Many families don't have 529 plans, McCoy wrote, and those that do are typically in higher tax brackets. Lower-income families, McCoy said, would benefit more from Pell Grant funding. Then there's Trump accounts, a new tax-advantaged investment vehicle for children that has to be established before they turn 18 and can't be tapped until after they turn 18. 'It's basically a kid IRA,' Whitehair said. He explained: 'Funds would grow tax-deferred; when you take them out they would be taxable to the extent of income that you've earned; if you're waiting until you're age 59 and a half — normal retirement age — you can take out without penalty; if you're taking it out before then it would need to be for certain qualified expenses like under the IRA rules.' Those qualified expenses include college expenses and first-time home-buying costs up to $10,000, Whitehair said. There's a $5,000-a-year contribution limit, but the government will contribute $1,000 to the Trump accounts as part of a pilot program for children born between Dec. 31, 2024, and Jan. 1, 2029. Still, 529s remain optimal for those looking to save for education expenses. 'A 529 plan is still going to be the gold standard,' Whitehair said. 'If your sole goal is to save for education, any of the funds that come out of the 529 plan — all the income that you've earned — if you're using it for qualified education expenses, it's going to come out tax-free.' Emma Ockerman is a senior reporter for Yahoo Finance covering economic and labor issues in personal finance. Sign up for the Mind Your Money newsletter
Yahoo
03-07-2025
- Business
- Yahoo
Trump tax bill brings some big changes to 529 plans
529 education savings plans are getting a major upgrade under President Trump's massive tax bill, particularly for parents looking to stash away cash for K-12 expenses. First, a quick overview: 529 plans allow anyone — not just parents — to set aside money in an investment account for certain education expenses. Earnings aren't subject to federal taxes, and withdrawals are similarly tax-free if the money is spent on a qualified category. The savings plans are typically thought of as being for college students, but they benefit young children too. Right now, due to changes first made in Trump's 2017 tax bill, parents can withdraw up to $10,000 each year to pay for K-12 tuition costs. The new legislation bumps up that benefit even more, allowing up to $20,000 in annual withdrawals while widening the definition of 'qualified expenses' in K-12 to include non-tuition categories like books, tutoring, standardized testing fees, educational therapies for children with disabilities, and more. Certain professional credential fees will also now be covered as qualified expenses. For example, Andy Whitehair, a director with the advisory, tax, and assurance firm Baaker Tilly, noted that CPAs like him could tap 529 funds to cover things like exams and licensing costs. That means 529 plans are now much more than just a college savings vehicle. 'You're expanding the eligible expenses that you can pay out of this, so I think that just inherently is going to make them more useful,' Whitehair said. By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy Elyse Germack, an attorney and CPA who does tax and estate planning in Birmingham, Mich., agreed that the wider perks will help parents pay for K-12 costs. 'Many families are interested in having greater options for use of funds, especially when it comes to K-12, and having the ability to pay for private school along with public school-type expenses would be very helpful,' Germack said. Still, the upgrades will only reach those who are both aware of the plans and have the ability to contribute to them, meaning lower-income families will likely be left out. Patricia McCoy, a professor at Boston College Law School, wrote in a recent Substack post that 529 plans "primarily are used as tax shelters by the top 10 percent." Many families don't have 529 plans, McCoy wrote, and those that do are typically in higher tax brackets. Lower-income families, McCoy said, would benefit more from Pell Grant funding. Then there's Trump accounts, a new tax-advantaged investment vehicle for children that has to be established before they turn 18 and can't be tapped until after they turn 18. 'It's basically a kid IRA,' Whitehair said. He explained: 'Funds would grow tax-deferred; when you take them out they would be taxable to the extent of income that you've earned; if you're waiting until you're age 59 and a half — normal retirement age — you can take out without penalty; if you're taking it out before then it would need to be for certain qualified expenses like under the IRA rules.' Those qualified expenses include college expenses and first-time home-buying costs up to $10,000, Whitehair said. There's a $5,000-a-year contribution limit, but the government will contribute $1,000 to the Trump accounts as part of a pilot program for children born between Dec. 31, 2024, and Jan. 1, 2029. Still, 529s remain optimal for those looking to save for education expenses. 'A 529 plan is still going to be the gold standard,' Whitehair said. 'If your sole goal is to save for education, any of the funds that come out of the 529 plan — all the income that you've earned — if you're using it for qualified education expenses, it's going to come out tax-free.' Emma Ockerman is a senior reporter for Yahoo Finance covering economic and labor issues in personal finance. Sign up for the Mind Your Money newsletter 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
Yahoo
03-07-2025
- Business
- Yahoo
Trump tax law brings some big changes to 529 plans
529 education savings plans are getting a major upgrade under President Trump's massive tax bill, particularly for parents looking to stash away cash for K-12 expenses. First, a quick overview: 529 plans allow anyone — not just parents — to set aside money in an investment account for certain education expenses. Earnings aren't subject to federal taxes, and withdrawals are similarly tax-free if the money is spent on a qualified category. The savings plans are typically thought of as being for college students, but they benefit young children too. Right now, due to changes first made in Trump's 2017 tax bill, parents can withdraw up to $10,000 each year to pay for K-12 tuition costs. The new legislation bumps up that benefit even more, allowing up to $20,000 in annual withdrawals while widening the definition of 'qualified expenses' in K-12 to include non-tuition categories like books, tutoring, standardized testing fees, educational therapies for children with disabilities, and more. Certain professional credential fees will also now be covered as qualified expenses. For example, Andy Whitehair, a director with the advisory, tax, and assurance firm Baaker Tilly, noted that CPAs like him could tap 529 funds to cover things like exams and licensing costs. That means 529 plans are now much more than just a college savings vehicle. 'You're expanding the eligible expenses that you can pay out of this, so I think that just inherently is going to make them more useful,' Whitehair said. By subscribing, you are agreeing to Yahoo's Terms and Privacy Policy Elyse Germack, an attorney and CPA who does tax and estate planning in Birmingham, Mich., agreed that the wider perks will help parents pay for K-12 costs. 'Many families are interested in having greater options for use of funds, especially when it comes to K-12, and having the ability to pay for private school along with public school-type expenses would be very helpful,' Germack said. Still, the upgrades will only reach those who are both aware of the plans and have the ability to contribute to them, meaning lower-income families will likely be left out. Patricia McCoy, a professor at Boston College Law School, wrote in a recent Substack post that 529 plans "primarily are used as tax shelters by the top 10 percent." Many families don't have 529 plans, McCoy wrote, and those that do are typically in higher tax brackets. Lower-income families, McCoy said, would benefit more from Pell Grant funding. Then there's Trump accounts, a new tax-advantaged investment vehicle for children that has to be established before they turn 18 and can't be tapped until after they turn 18. 'It's basically a kid IRA,' Whitehair said. He explained: 'Funds would grow tax-deferred; when you take them out they would be taxable to the extent of income that you've earned; if you're waiting until you're age 59 and a half — normal retirement age — you can take out without penalty; if you're taking it out before then it would need to be for certain qualified expenses like under the IRA rules.' Those qualified expenses include college expenses and first-time home-buying costs up to $10,000, Whitehair said. There's a $5,000-a-year contribution limit, but the government will contribute $1,000 to the Trump accounts as part of a pilot program for children born between Dec. 31, 2024, and Jan. 1, 2029. Still, 529s remain optimal for those looking to save for education expenses. 'A 529 plan is still going to be the gold standard,' Whitehair said. 'If your sole goal is to save for education, any of the funds that come out of the 529 plan — all the income that you've earned — if you're using it for qualified education expenses, it's going to come out tax-free.' Emma Ockerman is a senior reporter for Yahoo Finance covering economic and labor issues in personal finance. Sign up for the Mind Your Money newsletter
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
