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529s, More Than Just a College Savings Plan

By Paul J. Carroll, CFP®March 12, 2024Videos


529s have evolved a great deal since they were first designed for funding college. I’m here at Texas A&M, my alma mater here in College Station, visiting clients. I love this place. It’s a lovely campus and it’s a great opportunity to talk about how we can leverage 529s to do more than just pay for college.

The original 529 came in two flavors. The first was prepaid tuition. In most states those have morphed significantly because the deal was too good to be true, and the states ended up with some pretty significant bills. The other type is the more traditional 529 savings plans where you gift for your kids, your grandkids.

There’s a lot of neat things about the 529. One of them is the opportunity to do what’s called a five-year gift. Normally, gifts that are not reported have to be $18,000 per adult per child. So if you’re married, that’s $36,000 a year. If you’re putting the money in a 529, however, you can make a five-year gift. That’s $90,000 per adult per child. That’s a pretty significant gift, and if made early in the child’s life, it may be all you need to do to fund their college. But over and above the power of these large gifts, you also have enormous flexibility in how the money can be used. This money is owned by you, the owner of the account. The child is just the beneficiary, and as such, it doesn’t count against their assets when they’re applying for financial aid. Moreover, you can change beneficiaries. If the child doesn’t go to school, if the child decides to get done ahead of schedule, you can actually change the beneficiary to another child, a cousin, a niece, a grandchild. In my own life situation, I had a 529 that completely covered my daughter’s college. There was enough left over that I just changed the beneficiary to her son. So it’s a multi-generational gift. Because I gave it to the son when he was an infant, it’s going to be more than enough for that person to go to college, too.

Another benefit of the Roth IRA that’s fantastic, with Secure Act 2.0, you have the ability to roll the 529 funds into the beneficiary’s Roth IRA, which means they’ll never pay tax on it ever again, nor will their heirs if their heirs receive the money one day. Now there’s a limitation. The limitation is it can’t be more than the annual contribution limit for the Roth IRA, whatever that is that year, and there’s an aggregate limit of $35,000.

Texas A&M has evolved a great deal since I was here in the late ’80s. Like Texas A&M, the 529 has evolved a great deal, too. There are all sorts of tricks that you can use to fully maximize the value of this benefit, but there are also some traps.

It’s good advice to get good advice. We wish you the best of investment success and Gig ’em, Aggies!


Paul J Carroll
Founder & CEO at Avion Wealth

Paul is the founder and CEO of Avion Wealth, LLC. He leads a team of wealth managers in building and executing financial plans for high net worth individuals and families. Contact Avion Wealth to speak with a financial advisor.