Prepaid Plans simplify saving for future college costs. What is the difference between a Prepaid Plan and a Savings Plan?Ī Prepaid Plan is basically a prepackaged college savings plan covering specified college costs in the future. In general, qualified expenses include tuition, fees, room and board, and the cost of books, supplies and equipment required for the enrollment or attendance at an Eligible Educational Institution, including undergraduate, graduate, and vocational/technical schools. Earnings in 529 Plans are tax-free when they are used for Qualified Higher Education Expenses. There are two types of 529 Plans – Prepaid and Savings, and both Prepaid Plans and Savings Plans are authorized 529 college savings plans. The name “529” comes from Section 529 of the federal tax code, which authorizes states to offer the plans. Starting in 2024, a 529 owner who has a 529 plan that has been open for at least 15 years may roll over up to $35,000 of 529 funds to the beneficiary’s Roth IRA.A 529 Plan is a savings vehicle designed specifically for higher education expenses. This new option was made possible through SECURE 2.0, which was passed at the end of 2022. Although the most recent expansion of 529 rules technically doesn’t become available until next year, it represents a game-changing option for individuals with leftover funds in their 529 plans. The benefit is quite limited, however 529 plan owners may now expend up to $10,000 (a lifetime limit) to pay for the qualified student loans of the 529 plan beneficiary or a beneficiary’s sibling.ĥ29-to-Roth-IRA rollover. The SECURE Act of 2019 made provisions to address the critical expense of student loans. An added benefit of an ABLE account is that the first $100,000 isn’t considered a countable resource in most governmental benefit programs. An ABLE account functions similarly to a 529 account for tax purposes but permits distributions to be made for the beneficiary’s disability expenses rather than just educational expenses. Now, each year, a 529 owner may roll over up to the federal estate gift tax annual exclusion amount (currently $17,000) to an ABLE account. The Achieving a Better Life Experience Act, passed by Congress in 2018, made it possible for 529 funds to be repurposed in the event the beneficiary (or a member of the beneficiary’s family) is disabled. Various states have elected not to adopt the federal definition of “qualified educational expense” when it relates to K–12 therefore, 529 owners should be careful to check their state’s position on 529 expenditures and whether the expenditure could be subject to state tax.ĪBLE rollover.While most other 529 expenses related to higher education have broad application, the law specifically limits K–12 expenses to tuition items such as school supplies are excluded.There are two important caveats to be aware of, however: Within the TCJA’s expansive provisions was a key expansion to the list of acceptable 529 expenditures: the ability to use funds for K–12 tuition. The Tax Cuts and Jobs Act of 2017 made sweeping changes to the tax code. This equipment must be intended to be used while attending college. In 2015, the eligible expense menu for 529s was expanded to include the purchase of computer or peripheral equipment, computer software, or internet access and related services.
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