Yin, Yang, & Some Important Reminders About 529 Funds
INVESTINGOur tagline is Live Your Legacy. It’s meant to inspire people to find balance between living in the moment while being mindful of the future. It’s two halves of the same circle. Yin and yang.
I doubt there’s a more profound financial expression of this idea than the 529 fund, investment vehicles designed to help you save for your children’s higher education. What’s a better example of living your legacy than investing now so your kids can go to college later?
As the new school year begins, it's an ideal time to revisit your financial planning strategies, particularly when it comes to 529 funds. There are many aspects to consider to ensure you're making the most of them. Here are a few things to think about as school gets underway.
Take Full Advantage of State Tax Deductions
Many states offer tax deductions or credits for 529 contributions. This can reduce your state income tax bill. So when setting up a 529 account or making contributions, it’s important to understand what your state offers and how to maximize those benefits. Some states allow you to deduct contributions up to a certain limit, which can lead to considerable savings over time.
Pay Tuition With a Credit Card, Travel More
A popular strategy among parents is to pay for tuition using a credit card that offers rewards points (say, for airline miles) or even cash back. After making the payment to the school, you can reimburse yourself from your 529 account to pay off the credit card bill. This method allows you to earn rewards while still benefiting from the tax advantages of your 529 plan. Clever, eh?
Send Your Child to Equine Therapy School
Okay, so it doesn’t have to be equine therapy school (though that is, indeed, a thing). But it’s good to know that while 529 funds are commonly associated with paying for four-year universities, they can be applied to a wide range of educational institutions and programs.
For example, you can use 529 funds to pay for tuition at vocational schools, community colleges, and even specialized programs (like equine therapy school!). This allows you to support educational paths that may align more closely with your child’s interests or career goals.
Send Yourself Back to School
There’s always the chance your child won’t use everything in his or her 529 fund. Never fear. An often-overlooked benefit of 529 funds is the ability to change the account beneficiary. We’ve seen scenarios where retired parents name themselves as the beneficiary and use the remaining funds to go back to school, whether for career development or personal enrichment.
Charge Your Child for Rent
529 funds can also be used to cover college “rent,” even if that “rent” is your adult child living at home with you while he or she attends class. Why? It’s considered a room-and-board cost. Just go with it. This can ease your own housing expenses (you do have an extra mouth to feed).
SECURE 2.0: 529 Money for Your Child’s IRA
Talk about being mindful of the future. Yes, there will come a time when your child will retire. What better way to get them started on a nest egg than by channeling any unused 529 money into their very own Roth IRA. With the introduction of SECURE 2.0, there’s exactly this opportunity to convert a portion of unused 529 funds into Roth IRA contributions for them.