Thinking of a Career Change? Make Yourself the Beneficiary of an Educational Savings Plan
September 15, 2022
Thinking of a Career Change? Make Yourself the Beneficiary of an Educational Savings Plan
Since the COVID-19 pandemic began back in February 2020, we have been forced to pivot and adapt to many changes in all areas of our lives — including some aspects of our financial planning.
Specifically, we saw a need to make major adjustments to how we plan for education. The pandemic significantly disrupted normal schooling; one of the biggest impacts we saw over the last year was students of all ages undergoing a drastic shift from in-person to virtual learning.
This upheaval of our education system underscored the importance of building education planning for the future with flexibility in mind. In a post-pandemic world, a 529 plan is a great tool to use in designing an education funding strategy with versatility and adaptability. Make sure you take advantage of these three key features of 529 plans.
As many families wonder if future learning experiences will be in-person or remote, they can gain some peace of mind knowing a 529 plan provides advantages for each outcome. Many already know the cost of tuition and books count as qualified distributions from a 529. But many families don’t realize they can also pay for educational tools such as computers, peripheral equipment (like mouses, scanners, webcams and digital cameras) and internet access with 529 funds as well.
As long as the 529 plan’s beneficiary is the primary user of the computer hardware, software or internet access while enrolled in an eligible institution, the Internal Revenue Service considers that a qualified ex-pense. And bear in mind any software must be used for education; that means the IRS will not accept purchases of Roblox and Fortnite.
If remote learning continues or is here to stay, you can rest assured that your 529 plan has the flexibility to help you maximize the funds within the account.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act signed by President Trump in 2019 didn’t just impact retirement accounts. The law made sweeping changes to 529 plans, too.
This legislation allows borrowers to pay off up to $10,000 in qualified student loan repayments using a 529 plan in their name. As America’s student loan debt crisis surpasses $1.6 trillion, every little bit counts as borrowers wrestle with their student loan debt.
As it stands today, no other college savings vehicle will allow you to receive both tax-free account growth and tax-free withdrawals to pay off loans incurred while attending college.
The SECURE Act also expanded qualified expenses for which families can use 529 funds to include fees, books, supplies and equipment required for participation in a registered apprenticeship program. This expansion is excellent for those looking to join the workforce immediately or feel that college is not for them.
Keep in mind that the apprenticeship program will need to be registered and certified by the Department of Labor for the costs to be considered a qualified expense.
When it comes to saving for college, the most common question families ask me as a CERTIFIED FINANCIAL PLANNER is, “What happens if the current 529 plan beneficiary doesn’t need the funds?” The answer: You have options.
Account owners of 529 plans are not the same as the plans’ beneficiaries. Owners have complete control over both the assets and the plan’s beneficiary. You can choose any new beneficiary of the 529 plan, as long as they are a qualified family member (i.e., sibling, parent, children, first cousins, niece, nephew, etc.) of the original beneficiary.
An owner could even name themselves as the primary beneficiary of the 529. Given that the pandemic has forced millions of people out of work, this can be a significant benefit to anyone looking to go back to school right now to advance their skills or acquire new ones to change careers.
As we all have been forced to pivot during this pandemic, it is refreshing to know that the 529 plan continues to evolve with savers’ needs for higher education and vocational expenses.
