When it comes to saving for your child’s education, 529 plans are a popular choice due to their
tax advantages and flexibility. However, there are several lesser-known aspects of 529 plans
that can enhance your saving strategy. Here are five things you might not know about 529
plans:
1. You aren’t limited to the 529 provided in your home state.
There are numerous plans available nationwide. You can compare them based on factors such
as maximum contribution limits, fees, and available tax benefits. Identify your priorities and
select a plan that best meets those criteria.
2. You can change beneficiaries or shift funds pretty easily.
529 plans are more flexible than you might think when it comes to beneficiaries. You can
change the beneficiary to another family member without incurring taxes or penalties. This
feature is particularly useful if one child decides not to attend college, allowing you to use the
funds for another child’s education. Additionally, you can roll over funds from one 529 plan to
another beneficiary’s 529 plan once every 12 months without penalties.
3. Qualified education expenses are broader than you think.
Funds from 529 plans can be used for a wide range of educational expenses beyond just tuition.
Qualified expenses include room and board, textbooks, computers, and even internet access
required for schooling. This flexibility ensures that more of your education costs can be covered
using the tax-advantaged savings in your 529 plan.
4. The impact on financial aid is minimal.
Many parents worry about how a 529 plan will affect their child’s eligibility for financial aid. While
529 plans are considered parental assets and do impact financial aid calculations, the impact is
relatively minor. Typically, only up to 5.64% of the value of a 529 plan is counted towards the
expected family contribution (EFC) on the FAFSA. This is much lower than the assessment rate
for student-owned assets, which can be as high as 20%.
5. You have flexibility with unused funds.
If your child doesn’t use all the funds in their 529 plan, you have several options. As mentioned,
you can change the beneficiary to another family member or use the funds for graduate school.
Most notably, beginning in 2024, you may be able to roll over unused 529 plan funds to a Roth
IRA for the same beneficiary, so long as certain conditions are met. This rollover allows you to
convert up to $35,000 of 529 plan funds to a Roth IRA over the beneficiary’s lifetime, providing a
significant opportunity for tax-advantaged retirement savings.
James Duffy and Morgan Watson are Financial Planners with, and offers securities and investment advisory services through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial. LPLE and LPL Financial are not affiliated with Frame Wealth Partners.
