Americans who save for college plan in the 529 tuition savings program will soon allow rescuing unused funds while keeping their tax benefits intact.
College Savings Plan
A $1.7 trillion government funding package has a provision that allows College savers to retrieve and roll money from 529 plans to Roth individual retirement accounts free of income tax or tax penalties. The House passed late last year and it will start kicking in 2024. The provision allows tax-free rollovers of up to $35,000 in 529 tuition savings plans. The rollovers can only initiate if the funds have been in a 529 for at least 15 years. The amount also depends on annual Roth IRA limits. The contribution limit for 2024 is set at $6,500, with an additional $1,000 catch-up allowance for people over 50.
What Are Other 529 Education savings plans?
There are two types of 529 plans which are prepaid and savings. Both are offered by states so they can differ slightly from state to state, and both let you change plan beneficiaries to another family member if the money is unused. However, the savings plan is more popular because of its flexibility, including the Roth IRA rollover next year.
Here are the key points of each plan:
- Prepaid plans allow you to prepay and lock in tuition at today’s rates at eligible public and private colleges or universities but don’t usually cover other expenses, such as room and board. They usually require state residency when you apply and may limit enrollment to a certain period each year. Many have age or grade limitations for beneficiaries too.
- Savings plans don’t require state residency, meaning you can save in any state’s plan across the country. However, other states permit you to deduct your contributions from your state income tax or get a state tax credit, which could make your local plan the best option for you financially. You can select your investments, earnings will grow tax-deferred and withdrawals are tax-free when used for qualified education expenses like tuition and fees for K-12 college, graduate school, and trade school. This includes books, supplies, technology costs, and even student loan repayments. With up to $10,000 per year per beneficiary.
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