529 Education Savings Plans
Did you know that May 29 is National 529 Day? This day aims to raise awareness about 529 college savings plans. 529 Plans are powerful educational savings accounts designed to empower individuals in their efforts to save for a loved one’s education while reaping potential tax benefits. While New Hampshire does not offer state tax advantages for residents participating in the in-state 529 plan (through Fidelity), due to the absence of a personal income tax, many other states provide valuable tax incentives for contributions to their own in-state 529 plans.
One of the most significant advantages of 529 Plans is their tax-free growth potential, enabling families to significantly enhance their savings for the beneficiary’s educational expenses as the child grows. Funds are not only available for higher education expenses but also for tuition at primary or secondary schools. However, there is a $10,000 per student maximum for K-12. This strategy not only serves as an exceptional means for parents to secure their child’s educational future but also creates a wonderful opportunity for grandparents, uncles, aunts, and friends to make meaningful contributions toward educational costs.
Moreover, friends and family can choose to directly gift contributions to a child’s 529 plan, transforming traditional gift-giving occasions like birthdays and Christmas into impactful investments in the child’s future education. By choosing this route, you’re not just giving a gift; you’re investing in a brighter tomorrow.
In the last few years, the SECURE 2.0 Act has allowed for tax-free rollovers of unused funds from a 529 plan to a Roth IRA for the same beneficiary, up to a maximum of $35,000. This means you can avoid the usual 10% penalty for non-qualified withdrawals. This can help alleviate concerns when opening an account, especially if the parent is unsure about their child attending college.
529 Plans offer many benefits, including:
Tax-Free Withdrawals: Qualified withdrawals on earnings are tax-free.
Tax Incentives: While not available in every state, many states provide tax incentives in addition to the potential for tax-free earnings.
Asset Control: 529 Plans allow account owners to retain control over the assets, ensuring that the funds are used solely for educational purposes.
Flexibility: Investment strategies can be adjusted up to twice a year.
Open to Everyone: Anyone can contribute—parents, grandparents, aunts, and uncles—regardless of income, and contributions do not need to be reported on tax returns.
High Contribution Limits: In 2025, individuals can contribute up to $19,000 per beneficiary. A married couple can contribute up to $38,000 without affecting their lifetime gift tax exemption.
Savings for Individuals with Disabilities: 529 ABLE Plans are specialized, tax-advantaged savings accounts for individuals who are blind or have a disability due to a condition that began before age 26.