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  • Glenn Davila

A New Year, A New Opportunity to Save with a 529 Plan


The start of a new year is typically a time when people resolve to implement or recommit themselves to a personal financial goal. This year, why not consider opening a 529 plan account, or increasing your contributions to an existing account, to enhance your child's or grandchild's financial future? 529 plans are the most flexible they've ever been since their creation more than 25 years ago.


A college fund ... and more


Education, in any form, can be a key life building block. A 529 plan is specifically designed for education savings. The main benefit of a 529 plan is tax related: earnings in a 529 account accumulate tax-deferred and are tax-free when withdrawn (which could be many years down the road) if the funds are used to pay qualified education expenses. Some states may also offer a tax deduction for contributions. For withdrawals not used for qualified education expenses, the earnings portion is subject to income tax and a 10% penalty.

In recent years, Congress has expanded the list of expenses that count as "qualified" for 529 plans. Here are some common expenses that qualify:


  • Tuition and fees – up to the full cost of college/graduate school, vocational/trade school, and apprenticeship programs (schools must be accredited by Department of Education and courses can be online); up to $10,000 per year for K–12

  • Housing and food (room and board) – for college/graduate school only, provided the student is enrolled at least half time

  • Computers, required software, internet access, books, supplies – for college/graduate school only

  • Paying student loans – up to $10,000 lifetime limit

In addition, starting in 2024, families who have extra funds in their 529 account can roll over up to $35,000 to a Roth IRA in the beneficiary's name, subject to annual Roth IRA contribution limits.


Automatic contributions ... and more


Sure, you could build an education fund outside of a 529 plan, but the tax advantages of 529 plans are hard to beat. Plus, 529 plans offer other benefits:


  • The ability to set up automatic, recurring contributions from your checking or savings account, which automates your effort and allows you to save during all types of market conditions

  • The flexibility to increase, decrease, or temporarily stop your recurring contributions, or to make an unscheduled lump-sum contribution, that reflects the ebbs and flows of your financial situation

  • The option to choose a mix of investments based on the age of the beneficiary, where account allocations become more conservative as the time for college gets closer

  • A separate account from your regular checking, savings, or brokerage account, which may reduce the temptation to dip into it for a non-education purpose


How to open a 529 account


To open a 529 savings account, select a 529 plan and fill out an application online. You will need to provide personal information, name a beneficiary, choose your investment option(s), and set up automatic contributions or make an initial one-time contribution.


There are generally fees and expenses associated with participation in a 529 plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. The tax implications of a 529 plan should be discussed with your legal and/or tax professionals because they can vary significantly from state to state.


Most states offering their own 529 plans may provide advantages and benefits exclusively for their residents and taxpayers, which may include financial aid, scholarship funds, and protection from creditors. Before investing in a 529 plan, consider the investment objectives, risks, charges, and expenses, which are available in the issuer's official statement and should be read carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options, underlying investments, and investment company, can be obtained by contacting your financial professional.


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Securities offered through Lincoln Investment, Broker/Dealer, Member FINRA / SIPC.  www.lincolninvestment.com


Advisory Services may be offered through Lincoln Investment, or Capital Analysts, Registered Investment Advisers.


Allen Associates and the above firms are independent and non-affiliated. 


The Lincoln Investment Companies do not provide tax, legal, or social security claiming advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Diversification or asset allocation do not guarantee a profit or protect against a loss.


This communication is strictly intended for individuals residing in the state(s) of NJ. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Advisor Solutions Copyright 2023.

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