529 savings plans have long been viewed as a great, tax-advantaged way to invest and save for education expenses. These plans — which are generally maintained by a sponsor unique to each state — have historically been used to pay for a student’s qualified education expenses at any eligible institution.1
While 529 savings plans have been around for over 20 years, account holders and beneficiaries are focusing on new avenues created by recent legislation to take advantage of their unique features. We outline three examples below.
The Setting Every Community Up for Retirement Enhancement Act (SECURE 1.0) in 2019 expanded the definition of qualified education expenses to include the principal and/or interest on the repayment of qualified education loans of the beneficiary and/or their siblings. This distribution has a lifetime limit of $10,000 per borrower. Qualified education loans include all federal and most private loans.
Have leftover funds in a 529 savings plan? Beginning in 2024, you may be able to transfer certain unused assets — tax-free — from a 529 plan to a Roth IRA via a direct trustee-to-trustee transfer. This would give the beneficiary an early start on tax-advantaged long-term savings.
This transfer has the potential to allow beneficiaries to reap the benefits of both a 529 savings plan and a Roth IRA — and high-income beneficiaries may be able to contribute to a Roth IRA without being subject to AGI limits.2
Some employers who may be looking to differentiate themselves with enhanced benefits are adding a 529 savings plan to their platform. These benefits can include an employer match on contributions to a 529 savings plan — and you could be leaving money on the table if you’re not taking full advantage.
All of these strategies require careful planning to maximize the tax benefits. If this topic sparks any questions about your personal situation, contact your Goldman Sachs Ayco advisor.
Interested in learning more about Goldman Sachs Ayco financial management for executives? Contact us today.
2 https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2023
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