By Vincent Birardi, CFP®, AIF®, Wealth Advisor at Halbert Hargrove
It’s been well documented for many years that obtaining a college degree can be a very expensive endeavor. Is it worth the expense? A March 2024 Forbes article suggests that for many people, it is.
Compared to the average high school graduate, the earnings premiums for college graduates were:
$495,000 over a lifetime for people who completed an associate’s degree;
$1 million for those who completed a bachelor’s degree; and
$1.7 million for those with a graduate degree.[1]
One Way to Help Pay for College Without Loans
But what’s the best way to save for future college expenses and minimize debt? The 529 education savings plan account remains a popular choice to do so.
Since it became available in 1996, the 529 plan has been a popular choice for saving for future education expenses. Earnings in a 529 plan grow free from federal taxes for the account owner and will not be taxed when the money is taken out to pay for qualified college expenses. The program was expanded in 2017 to include K-12 education. Tax-free withdrawals for K-12 expenses are currently limited to $10,000 per year.
Flexibility to Change the Designated Beneficiary
Understandably, many assume that a 529 account can only be used to benefit a child or grandchild. A 529 plan account owner may change the beneficiary at any time without tax consequences when the new beneficiary is a family member – broadly defined by the IRS to include blood relatives and relatives by marriage and adoption.
You can also name yourself as the 529 plan beneficiary. This can be beneficial if you anticipate seeking additional career-related training in the future.
Unused Funds Can Be Transferred to a Roth IRA
Starting this year, if your 529 has been open for at least 15 years, you may transfer unused funds into a Roth IRA without paying taxes or penalties. There are a few preconditions to be aware of so be sure to speak with a CERTIFIED FINANCIAL PLANNERTM professional or other financial professional to learn more.
Education Tax Credit– Up to $36k for Married Filers in 2024
In 2024, you can contribute up to $18,000 ($36,000 per couple) into a 529 plan account tax-free. You can also make five years’ worth of tax-free contributions in one year but only once every five years.
This is where working with a CERTIFIED FINANCIAL PLANNERTM professional can assist in identifying the appropriate amounts to save and invest within a 529 plan account and also help you prioritize your education saving goals alongside your other life goals to help you have well-lived todays and tomorrows.
[1] College Degrees Lead To $14.2 Trillion Gain In Career Earnings, Study Finds (forbes.com)
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Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.
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