As most parents of college-bound children just sent their students off for the year ahead, it’s essential to revisit your college savings strategy for your children, particularly with some new changes that took effect in 2024.
Why College Savings Plans Matter
College is a significant financial commitment, and planning ahead is crucial to keep costs from overflowing. College savings plans, like 529 plans, offer tax advantages that can make saving for education more manageable. These plans have traditionally been a key tool for parents aiming to offset the rising costs of tuition, fees, and other educational expenses.
What’s New in 2024?
1. Expanded Uses for 529 Plans
In 2024, parents can now use these funds to repay up to $10,000 in student loans for the beneficiary and their siblings. This is a significant development, offering families more flexibility in managing education-related debt.
Previously, 529 funds were strictly limited to covering educational expenses like tuition, fees, books, and room and board. The new rule allows you to address student loans, helping to ease the financial burden on recent graduates and their families.
2. Tax-Free Rollovers to Roth IRAs
Another significant update for 2024 is the ability to roll over unused 529 plan funds into a Roth IRA for the beneficiary. If your child ends up not needing all the funds in their 529 plan, you can now transfer the remaining balance to a Roth IRA without incurring tax penalties. This change allows you to secure your child’s financial future by contributing to their retirement savings, even if their educational path shifts.
This flexibility ensures that your hard-earned savings continue to benefit your child, whether they pursue higher education or choose a different route.
3. Increased Contribution Limits
To keep pace with inflation and the rising cost of education, the contribution limits for 529 plans have been increased in 2024 as part of the Secure Act 2.0. This allows you to contribute more each year without exceeding the gift tax exclusion limit. The higher limit is particularly beneficial for families who started saving late or those aiming to cover a significant portion of their child’s education costs.
What Should You Do Now?
As your child prepares for the new school year, it’s an ideal time to reassess your college savings plan. Consider talking with your financial advisor about the best strategies from a tax savings standpoint and if you’re contributing the right amount to reach your goals.
Anchor Wealth Management is here to help you understand how the updates impact your savings strategy and guide you in making the best decisions for your family.
By Kirk Pearson, Wealth Advisor