Strategies for Supercharging, Extending, and Rollover of 529 Accounts.
A section 529 plan is a tax-advantaged way to save for a child’s college education, and it is important to stay informed about current tax issues that may affect it. Contributions to a 529 plan grow tax-free, and qualified expenses such as tuition are distributed tax-exempt. To take advantage of the benefits of a 529 plan, it is essential to understand the annual gift tax exclusion, which allows each gifted, such as a parent or grandparent, to exclude up to $17,000 per recipient in 2023. Additionally, a one-time gift of up to five years’ worth of contributions, up to $85,000 in 2023, can be made without incurring any gift tax liability. Keep updated on current tax issues to ensure that you are making the most of your 529 plan.
If you’ve set up a 529 plan for an older child who is no longer using the funds, you can extend the account’s usefulness by rolling over the funds to an account for a younger child, tax-free if completed within 60 days, or changing the beneficiary designation on the original account.
As your youngest child nears graduation, consider the SECURE 2.0 Act’s provision for tax-free rollovers of excess 529 funds to a Roth IRA, subject to annual contribution limits and other requirements. The Roth IRA must have been open for at least 15 years, and there is $35,000 lifetime cap on rollovers. By making informed decisions, you can maximize the benefits of a 529 plan for your family’s educational future.
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