Discussion on Education Savings and Workforce Trends
A panel discussion on “The Big Money Show” is set to explore a few interesting themes. One focus is why many Americans in their 40s are returning to school. The conversation will also touch on how artificial intelligence is altering career trajectories and the implications of increasing interest in trade programs for the workforce of the future.
For families saving for their kids’ education, tax-advantaged 529 accounts offer a great opportunity to enhance their savings. These accounts, usually set up by a parent or grandparent for minors, allow savings to grow without being taxed until withdrawn for qualifying expenses. Additionally, anyone can open a 529 account for their educational savings.
“The 529 is a fantastic tool for education savings,” said Thomas Psaltis, the director of the Education Savings Program, in an interview. He emphasized that utilizing this tax-free revenue growth can significantly impact how families fund future education for their children and grandchildren, especially as tuition rates rise.
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Over the past 30 years, the number of 529 plans has skyrocketed to 17 million accounts, which collectively hold more than $5 trillion in assets. Psaltis explained that besides the main benefits, 529 accounts also offer features that might be missing from other savings methods.
“One major advantage is their versatility,” he said, noting that while these accounts were originally designed for four-year college expenses, they now cover much more. Recent changes in legislation, particularly the SECURE 2.0 Act, incorporated expenses for K-12 tuition, which has expanded significantly.
“We are now including registered apprenticeship and certification programs as eligible for tax-free expenses,” he added.
According to Psaltis, Merrill Lynch advisors encourage their clients to think ahead, as 529 plans cater to clients across various income levels.
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While the 529 plans have matured, misconceptions persist. Many families believe that these accounts must completely fund college to hold value, which can cause hesitation in starting a plan.
“The biggest loss here is the opportunity for tax-free growth,” Psaltis noted. “Those who opt for taxable savings may miss out on meaningful, long-term gains.”
Contributions are considered taxable gifts. A maximum of $19,000 can be contributed annually per beneficiary without triggering gift taxes. Plus, 529 accounts allow individuals to advance contributions for up to five years.
If a grandparent typically gifts $38,000 yearly to a child’s 529, they could potentially give up to $190,000 in one year, effectively removing that amount from their estate for tax purposes.
Flexibility of 529 Plans
If someone benefiting from a 529 account doesn’t end up pursuing college or a technical program, there’s no need to withdraw the funds immediately. The funds can remain in the account, maintaining their tax benefits, which allows for future educational decisions.
“If kids change their minds about going to college, those funds can still be useful down the line,” Psaltis pointed out. “And you can change who the beneficiary is at any time.”
“If all else fails and the account has been active for over 18 years, there are still options available, such as rolling over part of the 529 earnings into a Roth IRA,” he noted, indicating this could help ease beneficiaries into life after education.
In summary, it’s essential to remember that funds from a 529 account aren’t permanently inaccessible. However, early withdrawals not used for qualifying expenses may incur taxes and penalties. Psaltis encouraged careful consideration of how these funds can serve future educational needs.
