When I work with families with young children, a common college-saving concern they have surrounds 529 plans. Clients always ask “What if my child doesn’t go to college?” As far as concerns go, it’s both common and logical.
It keeps far too many people from leveraging a 529’s benefits.
Right now, you have some flexibility with the funds. Legislation proposed by Sen. Maggie Hassan (D-NH) and Sen. Susan Collins (R-ME) would add another excellent option for unused 529 funds.
The Helping Parents Save for College Act of 2022 would allow families to rollover unused 529 funds into a Roth IRA. This way, if your child decides not to go to college, you are giving them a big jumpstart on saving for retirement.
Under the bill’s proposed language, funds that have been in a beneficiary’s account for 10 years would be eligible for the rollover. This would relieve the biggest risk clients take by using 529s to save for their childrens’ college education.
The bill would also extend a federal tax credit for contributions to 529s. This would be worth up to 50% of the contribution. This would work in tandem with the state tax benefits many states offer. This credit would phase out completely at $66,000 of AGI, though.
This bill is still in committee. It has a long way to go before becoming law. It’s an election year and Sen. Hassan is up for re-election this year, so the bill might face some political resistance. It’s a bill that I will be watching closely (translation: I set a Google Alert). Since it benefits so many people and has bipartisan sponsorship, I’ll keep my fingers crossed.