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529 Account Updates & SECURE Act 2.0

There are many things to consider when finding a savings vehicle for a child like the flexibility of the account, how it would impact financial aid, and tax implications. We went into detail on the considerations in our blog “Kids Savings Accounts - How to Save for Your Kids Future,” but of course, times change!! There have been important changes to 529 plans and financial aid impacts due to the SECURE Act 2.0 that we should all be aware of. 

Many of us are familiar with 529 plans being only utilized for qualified educational expenses, however starting in 2024, the SECURE Act 2.0 will allow a maximum of $35,000 of unused funds to be rolled over to a Roth IRA. Yes… you read that right. Imagine your child at 22 years old, having completed college, and now nearly $40k saved for retirement!! 🤯 For this rollover to occur, the 529 plan must be established for at least 15 years and only the annual Roth contribution limit may be rolled over each year. 

The SECURE Act will also allow a 529 beneficiary to use $10,000 from their 529 plan towards student loan payments in their lifetime. This is the lifetime maximum per person, not per account. 

One update, separate from the SECURE Act, involves the financial aid impact of a 529 plan. 

Here’s some background on how the federal government determines financial aid. 

We know that each year each student must file a new FAFSA to be considered for federal financial aid. The U.S. Department of Education uses the cost of attendance minus the student aid index (SAI) to determine financial need. The SAI estimates the ability of the parents and/or students to contribute to educational expenses. It considers family size, living expenses, dependency status of the student, and savings. According to the SAI, colleges would expect about 20% of the student’s assets and 5.64% of the parents’ assets to be available to pay for college. 

“Old rules” stated that 529 plans owned by a grandparent were considered a student asset and, as a result, would have a greater impact on financial aid (20%) than if the plan were to be owned by the parent (5.64%). Starting in 2024, NEW RULES say distributions from grandparent-owned 529 plans are no longer part of the asset calculation for SAI. This changed the impact of a grandparent-owned 529 plan from 20% of a student's asset to 0, even more favorable than a parent-owned 529 plan!! 

These updates to 529 plans offer more flexibility to the plan and prove that it could be a great benefit to have for your child, however, there are other factors at play when deciding how to save for your child’s future! If you need guidance with financial decisions like this, schedule a free consultation with us. We’re happy to help! 

Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.

Fyooz Financial Planning
Founders, Fyooz Financial

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