Is a 529 plan the best college savings vehicle for your family?

Is a 529 plan the best college savings vehicle for your family?

This seems like a simple question, but the answer lies firmly in the “nothing is simple category”.

Outside of scholarships and financial aid, the vast majority of people seeking higher or specialized education will require some assistance with funding. Some people would prefer to have more flexibility for their student to choose how to spend the funds, others want the money to only be used for tuition. Whatever the case may be there are different accounts that can be established to best achieve your goals. Below we’ve added a chart to see some of the differences.

Limits Roth IRA 529 Plan ESA
Investment Options Stocks, bonds, ETFs, mutual funds . Mutual Funds Stocks, bonds, ETFs, mutual funds.
Contribution Limits $7000.00 if you are under 50 and $8000 if your age 50 or older. No contribution limits but there are aggregate limits depending on the state $2000.00 per beneficiary
Income Limits For 2024, individuals must have a modified adjusted gross income of less than 161,000 and 228,000 if married. None Income limits on who can contribute: Gross income of $110,000 for individual, $220,000 for a couple.
Withdrawal limits Can withdraw contributions at any age. There is no penalty when you withdraw earnings for education expenses but it will be taxable if taken before the age of 591/2 No taxes or penalties if the withdrawal is used for qualified education expenses.

10% penalty plus taxes if withdrawn for non-education expenses.

Must be used by student age of 30.

Can only be used for qualified education expenses, which is more broadly defined than with a 529 plan.

These are broad strokes intended only to address some of the high-level details about each account type. Please do give us a call if you have any questions.  We’d be happy to go over which option may make the most sense for you.

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