As college costs continue to rise, it’s more important than ever to have a solid plan in place to finance your child’s education. Fortunately, 529 college savings plans have never been a better option. These powerful investment accounts offer unparalleled tax advantages and flexibility to help you maximize your savings.

With 529 plans, your contributions grow tax-deferred, and qualified withdrawals are free from federal income tax. Many states also offer additional tax incentives for residents. This makes 529 plans one of the most effective ways to build college funds over time.

But the benefits don’t stop there. 529 plans allow you to invest in a diverse range of mutual funds, ETFs, and other securities to potentially grow your savings at a faster rate. And you can use the funds for a wide variety of qualified expenses, including tuition, room and board, books, and even computer equipment.

Whether your child is just a newborn or heading off to high school, it’s not too late to take advantage of a 529 plan. With flexible contribution limits and no income restrictions, these plans are accessible to families of all financial backgrounds. It’s an opportunity you can’t afford to miss in securing your child’s educational future. In recent years, these plans continue to offer even more benefits.

Even before recent changes, there were already many advantages to a 529 plan. In more than half of all U.S. states, you can get a tax deduction or credit for contributions. Earnings grow on a tax-advantaged basis, and when you withdraw the money, it is tax-free if the funds are used for qualified education expenses. Some states offer scholarships and matching grants to their residents if they invest in their 529 plan.

The Secure Act of 2019 has brought about a significant change that will benefit families with 529 plans. As of 2024, these families will be able to roll over unused 529 plan funds to the account beneficiary’s Roth IRA without incurring any income taxes or penalties, provided that the 529 plan has been open for at least 15 years.

This new provision is a game-changer for those who have been diligently saving for their children’s education. It offers an opportunity to maximize the long-term benefits of these tax-advantaged accounts and provide even more financial flexibility for the future.

Moreover, the Secure Act also allows families to use up to $10,000 from a 529 plan to pay off the student loan debt of the plan’s beneficiary, as well as an additional $10,000 for each of the beneficiary’s siblings. This provision can provide much-needed relief for families who are struggling with the burden of student loan debt.

The 2024 increase in 529 plan contribution limits presents a significant opportunity for families looking to fund a family member’s higher education. This year, parents can gift up to $18,000 per child, or up to $36,000 if filing taxes jointly, without those contributions counting toward their lifetime gift tax exemption (increased from the $17,000 limit in 2023).

For families with the financial means, “super-funding” 529 accounts is a particularly compelling strategy. This approach allows you to frontload five years’ worth of tax-free gifts into a 529 plan, providing a substantial boost to your loved one’s educational fund.

Maximizing your annual gift tax exclusion can be a smart strategy to transfer wealth while minimizing tax implications. In this case, you could contribute up to $90,000 in a single year, or $180,000 for a married couple. This larger lump-sum contribution upfront may potentially generate more earnings compared with the same size contribution spread out over a few years, as it has a longer time horizon to potentially grow, according to Fidelity. However, it’s important to note that you wouldn’t be able to give more money to that same recipient within a five-year period without it counting against your lifetime gift tax exemption. Carefully considering your overall financial plan and tax situation is crucial when exploring this approach to gifting.

Lastly – the new simplified FAFSA has brought some significant changes that can benefit grandparents with 529 college savings plans. Under the old rules, assets held in grandparent-owned 529 accounts were not reported on the FAFSA, but distributions from those accounts were counted as untaxed student income, which could reduce financial aid by up to 50 percent of that income.

However, the new FAFSA guidelines have eliminated this penalty. Now, grandparent-owned 529 plans are not reported as student assets, and distributions from those accounts are also no longer counted as student income. This means grandparents can contribute up to $90,000 in a single year to a 529 plan without it impacting their grandchild’s financial aid eligibility.