Over the last few years, we’ve written much about 529 accounts that provide an excellent tool where approved educational expenses like tuition, textbooks, room and board, and computers may be funded while offering tax-deferred investment return and tax-free distributions.
Today we are highlighting four timely topics related to 529 plans and the economic environment.
With the significant market volatility over the last several weeks, we are vividly reminded of the importance of diligence regarding investment risk and your child’s age. With a finite investment time horizon, investments within a 529 plan need to adjust to lower risk allocations as college approaches. Neglecting to make these shifts can drastically impact your ability to meet education goals when the market turns negative and the funds are needed.
A colleague recently recalled a very similar experience when the markets dropped severely… “When I was born, my parents began to save for my college. They scrimped and saved every month, adding birthday, confirmation gifts and even their bonuses to this fund,” she reflected. “Without the guidance of a financial advisor, they invested in a higher risk mutual fund. When 529 plans became available in 1996, they transferred their investment to this plan and assumed that the plan would be fully funded by my graduation. Then September 11th happened. The 529 account lost thousands of dollars and only through strict budgeting and limited cash flow was I able to complete my education.”
Important note: As the pandemic caused our universities and colleges to close, some institutions are responding by providing a refund of tuition, room, and board to their students. If the refunded fees were initially paid for with 529 funds, it is important to return the funds to the 529. Considering the refunded distribution is no longer being used to pay a qualified education expense, the IRS could recharacterize the distribution as taxable if not returned to the account within 60 days of the refund issuance.
With unemployment soaring, and young workers struggling to meet the demands of paying off student loans, the Cares Act has offered relief with meaningfully changes expanded by the SECURE Act passed on December 20th, 2019.
- Up to $10,000 of left over 529 funds may be used to pay a beneficiary’s student loans. In conjunction with existing options to change beneficiaries, this provision can help families with multiple students finance an education more effectively.
- Additionally, 529 funds may now be used to finance registered apprenticeship training programs – including from fees, equipment, and supplies. A college education may not be for everyone, and this new provision helps ensure that 529 funds are used for learning both inside and outside the classroom.
Pursuing your financial goals requires a sound understanding of the changing environment we live in. Olson Wealth Group is consistently monitoring new legislation and industrial trends for new opportunities. We appreciate your partnership, trust, and confidence; we are committed to serving you with clarity of information and the wisdom applied to new planning techniques.
Olson Wealth Group is a full service wealth management firm. With wise counsel and clear strategies, our experienced specialists provide tailored approaches that strive to maximize wealth. For more information, please visit OlsonWealthGroup.com
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please consult your financial advisor regarding your specific situation.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such a state’s qualified
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