The average cost of tuition and fees for a public 4-year institution has increased about 25% in the last 10 years. With student loans becoming less desirable, how are you planning on paying for college for your children?
Good afternoon, everyone and welcome back to Finance Friday. Last week we outlined a few changes to education spending brought upon by the OBBB Act. The latest annual inflation rate for college tuition & fees is at 3.8%. With this increase and new laws being passed, now is the time to shift your education planning and look for different ways to be able to pay school expenses.
529 Plans are a popular savings tool to help offset education expenses. A 529 Plan involves contributing money into an investment account; however, the key benefit is it will be a tax-free distribution if the proceeds are used towards education expenses. Here are 3 ways that a 529 Plan can be beneficial and flexible for you:
Distributions are Tax-Free if they are used for educational purposes
As the owner of the 529 Plan, you need to make sure that the distributions are being used for educational purposes in order to get the tax benefits. Some of these education expenses are:
(Tuition & fees, room and board, books and supplies, computers, student loan repayment)
If your child chooses not to go to college, the plan is flexible enough where they can use the funds for Vocational schools or apprenticeship programs.
Distributions can be used for Primary School expenses
529 Plans can be used for earlier education funding. The annual withdrawal limit for qualified K-12 expenses is $20,000, per student at the start of 2026. This is incredibly helpful for families that need those funds for private schooling, specialized tutoring, and educational therapies, that are becoming more common amongst families.
The account can be rolled over into a Roth IRA
Starting in 2024, account owners can rollover unused 529 Plan funds, up to $35,000 per beneficiary, into a Roth IRA. In the past, unused funds came with penalties, which made families avoid overfunding a plan, even if a child received a scholarship or decided to bypass college completely. Now this new provision has changed it so that unused funds can turn into a child’s retirement starter kit, which eliminates the “use it or lose it” scenario.
Although education expenses are climbing, you have a few tools in your belt that you can use to offset the costs and help you with your tax planning. Remember to submit your questions and thoughts on our discussion to hector@hrcfin.com. Don’t forget to follow HRC Financial on Facebook and LinkedIn for more Finance Friday Tips and Insights.
A quick update, today everyone’s eyes, including mine, were on the Space X IPO. The IPO was to begin at $135 per share and immediately climbed to about $175, ultimately settling for $160. I have more to say about IPOs in general, but we’ll hold off until later in the summer.
Thank you again, enjoy the start of the World Cup and lets root for the U.S as they take on Paraguay tonight!