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The Flexibility in 529 Plans

Recent changes have made the college savings vehicle even more attractive

For decades 529 plans have been a mainstay of college savings, but recent changes have made them even more flexible and accessible for all kinds of families. Many parents have been concerned about what might happen to their investment if their child ends up not going to college, or not needing all the funds, but that shouldn't be a worry. You have options:

Transfer to a Roth
The recently passed SECURE 2.0 Act may allow you to transfer unused funds from an existing 529 college savings account to a Roth IRA beginning in 2024, as long as the 529 has existed for at least 15 years and the Roth IRA has the same beneficiary as the 529 plan. The maximum rollover amount in any year is limited to the IRA contribution limit for that year ($6,500 for 2023) reduced by any actual Traditional or Roth IRA contributions made that year. There are other limitations as well, so check with your Baird Financial Advisor.

Extend to Family Members
Probably the most common way that families handle excess funds in a 529 plan is to transfer the assets to a sibling's plan. But that's not your only option: the family of a beneficiary can roll that money over to stepsiblings, parents, nieces, nephews, cousins, in‐laws and spouses.

Pay Down Loans
The original SECURE Act, passed in 2019, allows 529 plan holders to use up to $10,000 for paying down student debt during the beneficiary's lifetime.

Cover More Than Tuition
The Bipartisan Budget Act of 2015 allowed the funds in a 529 to be used for computer equipment including tablets and related expenses such as Internet service. Previously, these were only permitted if they were required by the school or a specific class, but that is no longer the case. You can also pay for room and board and even off‐campus living expenses with your 529. And the SECURE Act made distributions for fees, books, supplies and equipment required by federally approved apprenticeship programs federally tax‐free.

A Wide Range of Investment Options
Finally, don't forget that a 529 is an investment vehicle and that you should be strategic how you invest the money. Since 2015, 529 account owners have been able to change the investment option in an account twice per calendar year. Your Baird Financial Advisor can help you find the investment option that is right for you and guide your education funding strategy.

Investors should consider the investment objectives, risks, charges and expenses associated with a 529 Plan before investing. This and other information is available in a Plan's official statement. The official statement should be read carefully before investing.

Depending on your state of residence, there may be an in‐state plan that provides tax and other benefits such as financial aid, scholarships and creditor protection that are not available through an out‐of‐state plan. Before investing in any state's 529 plan, you should consult your tax advisor.

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