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Explore your options before heading to college

What can you do with your 529 college savings when plans change?

The recently enacted SECURE 2.0 Act includes many updates aimed at helping Americans prepare for retirement. One of the changes? Eligible 529 plan beneficiaries might be able to roll over funds to a Roth IRA.

The 529 account must have been open for at least 15 years, and the funds being moved must have been in the account for at least five years, according to Ascensus. The rollovers are subject to annual Roth contribution limits, and the lifetime rollover amount is limited to $35,000.

This change goes into effect for distributions made after Dec. 31, 2023.

Knowing what’s best for your children isn’t always easy. Especially when it comes to planning for their future.

Exploring how to save for your children’s college education can be one of those parenting quandaries: How do you know what’s the best savings strategy for your family?

A 529 college savings plan is one avenue worth considering. Often state-sponsored, a 529 plan is an investment account that allows you to save for future qualified education expenses.

Here’s a look at how the accounts work—and what you can do when life happens and plans change.

The funds can offer tax benefits

Saving through a 529 college savings plan can offer tax savings, according to the College Savings Iowa 529 Plan:

  • Your earnings might be able to grow federally tax-deferred.
  • Qualified withdrawals are tax-free.
  • Some states offer other tax benefits as well.

Like other investment strategies, the sooner you start saving, the more time your savings can potentially grow.

Learn the benefits of compound interest >

(Hint: You might be able to take advantage of other tax savings too. Did you know about these tax deductions?)

You can change the beneficiary

When you open a 529 plan, you designate a beneficiary of those funds. But what if the beneficiary receives a full-ride scholarship or skips college?

With college savings plans, you the accountholder remain in control of the funds, so you can change the beneficiary to another qualified one at any time, according to College Savings Iowa. Eligible family members include the original beneficiary’s:

  • Siblings
  • Parents (That means you can further your education, too!)
  • Cousins
  • Nieces
  • Nephews
  • Aunts
  • Uncles
  • Grandparents
  • Spouse
  • Children

You can save in one combined 529 account

Because the beneficiary can easily change, you also have the option to create one 529 plan to use for all of your children.

Here’s how that might look:

Say you have three children. You open one 529 plan under the name of your oldest child. As child no. 1 attends college, you withdraw and use his share of the savings. As child no. 2 begins college, you make her the account’s beneficiary. You repeat the process for child no. 3.

It’s one way a family can simplify the college saving process.

Meet with Dupaco to learn more about 529 plans >

Use 529 savings for other education-related expenses

You can use up to $10,000 per year per beneficiary toward a student’s K-12 school tuition, according to College Savings Iowa. Qualified education expenses also can be used at postsecondary trade and vocational schools, two- and four-year colleges and postgraduate programs.

Qualified higher-education expenses include:

  • Tuition
  • Books
  • Room and board
  • Computer hardware and software
  • Internet access and related services and required supplies

You can withdraw the funds

If your original beneficiary can’t use the savings—and you don’t have another qualified beneficiary—you still have a couple of options:

  • Stay the course: Children can change their mind. Maybe down the road, college will become part of the plan. Meantime, your 529 benefits don’t expire by a certain date.
  • Withdraw the funds for unqualified expenses: If education expenses aren’t in the cards, you can still withdraw your savings to use how you wish. You might pay federal and state income taxes and a 10% federal penalty on the earnings, according to College Savings Iowa.

529 college savings plans are part of the puzzle

When feasible, saving for your children’s college education can be a wonderful gift. At the same time, you don’t want to jeopardize other financial goals like retirement.

Because everyone’s financial situation and goals are unique, working with a trusted financial planner can help you prioritize your financial goals to allocate your funds accordingly. In the end, it’s a balancing act.

When federal aid isn’t enough, Dupaco can help >