Summer Savings Strategies: It’s National 5-2-9 Day

May 29, 2024

By Theresa Cagle Fry, Senior Vice President and Manager IRAs, Retirement & Education Planning
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Summertime! Adults and kids alike look forward to it. For some, the pace of life slows down a little. For others, it gets crazier with so many outdoor activities to enjoy. With warm weather, vacations, and fun times with family and friends at the top of your to-do list, it might be easy to put things like your finances on the back burner.

As we enter summer and the season of relaxation, we will be featuring a number of “Summer Saving Strategies” to get you on track or help you recalibrate financially, whether you are preparing for or living in retirement, just getting started on your financial independence, saving for a loved one’s future education expenses, or your finances could use a check-up.

The last thing your kids probably want to think about as summer begins is school. But today is May 29, which has been dubbed National 529 Day to remind everyone of the value of planning and saving for education expenses with a tax-advantaged 529 plan.

529 plans are named after the Internal Revenue Code – Section 529 – that created them. They can be an excellent way to provide tax-free benefits for qualified education expenses. Contributions can be made by annual gifts, which you can make to any individual in amounts up to $18,000 per year or, alternatively, you can use a special advanced funding rule that allows up to five years of annual gifts to be made at one time. This increases the contribution amount to $90,000[i]. For married couples, both spouses can make gifts to the same student/beneficiary, doubling the amounts to $36,000 using an annual gift and $180,000 using the five-year advance gifting election.

Although there is no federal income tax deduction available for contributions made to a 529 education savings plan, investments grow tax-deferred and, if used for qualified education expenses, the withdrawals will be income-tax-free[ii]. 529 savings plans are sponsored by states, and many will provide the contributor with a state income tax deduction or credit, which is typically contingent upon the contribution being made to the 529 plan that is sponsored by the state you reside in, although a few exceptions apply.

If you have avoided funding a 529 savings plan for your child or grandchild for fear of them not going to college, or if you have concerns about them having leftover savings after college, fear no more! 529 education savings plans are more flexible than ever before. For students who will attend a college or university, tax-free benefits from a 529 plan generally include tuition and fees, books and supplies, housing, and food. But 529 savings plans can also be used tax-free for K-12 tuition (up to $10,000 per year), for trade schools or apprenticeship programs after high school, and for repayment of student loan debt (up to $10,000) for the student or siblings of the student[iii].

You also have the flexibility to change a beneficiary, income tax free, to another eligible family member. For example, you could move all or part of the savings from your oldest child to a younger child or keep the savings in the 529 plan and in the future change the beneficiary to the current beneficiary’s children.

Long-term unused 529 education savings plan balances can also be moved tax-free to a Roth IRA for the 529 plan beneficiary to be used for future retirement income. This new 529 savings plan to Roth IRA feature began in 2024. To be eligible to transfer your 529 savings plan balances to a Roth IRA:

  • The amount transferred must be from a 529 savings plan that has been available for at least 15 years and cannot represent any contributions or earnings from the prior five years.
  • The Roth IRA beneficiary must have earned income, although the typical Roth IRA modified adjusted gross income limits do not apply.
  • The amount transferred to the Roth IRA cannot exceed the annual Roth IRA contribution limit (for 2024 this amount is $7,000).
  • The total amount transferred during the 529 savings plan beneficiary’s lifetime cannot exceed $35,000.

If you are planning to help with your child’s or grandchild’s education costs, the tax advantages and flexibility of a 529 savings plan make it a more attractive alternative than using your personal or retirement savings. When you consider the average one-year undergraduate cost for the 2023-2024 academic year for tuition, fees, housing, and food for attending a four-year, public, out-of-state college was $41,920 and $24,030 for an in-state four-year public school[iv], there is no better time to create a savings plan for your loved one’s education. Contact a financial advisor today for more information about 529 education savings plans.

[i] When making the election for advanced five-year gifting to fund a 529 education savings plan for the maximum amount, any additional gifts made to the student/beneficiary during the five-year period would be considered a taxable gift, unless the gift tax exemption increases. With the advanced gifting election, the gift is prorated over five years equally.

[ii] Withdrawals that are not used for qualified education expenses typically result in federal income taxes and a 10% penalty on the earnings portion of the withdrawal. Some exceptions to the penalty apply. Non-qualified withdrawals can also result in a recapture of state income tax benefits previously received.

[iii] These uses of 529 savings plans, although recognized as qualified tax-free distributions for federal income tax purposes, may not be considered qualified distributions for your state income tax return. State nonqualified withdrawals can result in a recapture of the previously provided state tax deduction or credit.

[iv] The College Board, “Trends in College Pricing and Student Aid 2023,” Table CP-1.


IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.