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Tag: 529 plan

  • 14 Ways to Show Your Finances Some Love This Year – Part 1

    14 Ways to Show Your Finances Some Love This Year – Part 1

    Ah, February – the month of love, where hearts flutter and chocolates abound. But amidst the romantic whirlwind, there’s a different kind of love that deserves our attention: the love we show ourselves and our family through thoughtful financial planning.

    Now I know what you’re thinking – that doesn’t sound as fun or showy as a fancy night out or a bouquet of flowers (or a night in with Netflix). But trust me, making smart planning decisions with your assets is one of the best gifts you can give – and a gift that keeps giving over time.

    This week, we explore seven tax planning tips that not only secure your financial future but also spread love and prosperity to those you cherish most.

    1 | Make a Qualified Charitable Distribution (QCD)

    Want to spread love to a charity you’re passionate about? Is your retirement account looking good? Consider making a qualified charitable distribution from your account directly to charity. Not only does this fulfill your required minimum distributions, but it also exempts the amount from your taxable income. By giving back to causes close to your heart, you can make a meaningful impact while reducing your tax burden.

    2 | Front-load your 401(k) contributions

    Show love to your future self by maximizing your 401(k) contributions early in the year as opposed to spreading them out evenly over 12 months. By reaching the 2024 limits of $23,000 sooner, your investments will have more time to grow, potentially enhancing your retirement nest egg even more. It’s a proactive step toward securing financial stability for yourself and your family down the road.

    3 | Set Up an IRA for a Child

    Want to inspire financial skills in your kids while getting a tax advantage? Teach the next generation the value of financial planning and responsibility by setting up and contributing to an IRA for a child with earned income. Whether it’s from babysitting or odd jobs, every dollar invested grows tax-free, providing a solid foundation for their future financial well-being.

    4 | Make Donations During Spring Cleaning

    Ah, the annual ritual of spring cleaning. This year, let’s infuse this mundane task with a dose of love and generosity. As you sift through your belongings, consider the items that no longer serve you but could bring joy to others. From gently used household furnishings to clothing and books, each item holds the potential to make a difference in someone’s life.

    Here’s the cherry on top: for items in good condition, you may claim a charitable deduction on your 2024 income tax return, making your act of kindness even sweeter. So as you purge the old and welcome the new, keep receipts of your donations – it may add up to some real tax savings.

    5 | Give the Gift of Appreciated Stock Shares

    Strengthen familial bonds while supporting charitable causes by giving appreciated securities and stock shares directly to your sibling’s favorite charity. By donating your appreciated stock instead of selling it, you can potentially avoid recognizing the gain as your income, maximizing the impact of your charitable giving while minimizing your tax liability.

    6 | Establish a 529 College Plan

    Invest in the educational future of your loved ones by setting up a 529 plan. While the contributions you make to a 529 account aren’t tax deductible, contributions to these plans grow tax-free and can be withdrawn tax-free when used by your loved one for qualified education expenses like housing, books, tuition, and more. Whether it’s for your child, grandchild, niece, nephew, or another family member, a 529 plan is a gift that keeps on giving.

    7 | Roth Conversion

    Show love to your retirement savings by considering a Roth conversion on a traditional IRA. If your traditional IRA has declined in value, now is the ideal time to convert it to a tax-saving Roth. Doing so can reduce your income tax liability later on and let you potentially enjoy tax-free withdrawals in retirement. It’s a strategic move that can optimize your retirement income while minimizing tax obligations.

    Let Us Help You Show Your Finances Some Love

    February offers a perfect opportunity to demonstrate love not only through romantic gestures but also through practical Life & Legacy Planning. By incorporating these tax planning tips into your overall planning strategy, you can secure a brighter future for yourself and your loved ones while making a positive impact on your community.

    We’re here to guide you through every step of your planning journey, from taking inventory of what you have and what’s important to you, to the practical steps of how to plan for the life and legacy you dream of.

     Schedule a complimentary 15-minute call with our office today to learn more.

    This article is a service of Jeannette Marsala, Personal Family Lawyer. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Life & Legacy Planning Session, during which you’ll get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life and Legacy Planning Session.

  • Have Unused 529 College Savings? Roll Them Into a Roth in 2024

    Have Unused 529 College Savings? Roll Them Into a Roth in 2024

    In December 2022, Congress passed the SECURE 2.0 Act, bringing significant changes to the world of retirement savings and student loans. Two key parts of the Secure 2.0 Act are set to take effect in 2024, and they could substantially impact your family’s financial future. 

    In this blog, we explain how the new law affects your unused 529 college savings account and what that means for your future savings.

    You Can Now Roll 529 College Savings Into A Roth IRA

    A 529 college fund is a tax-advantaged savings account that is designed to help families save for their children’s college education. With the SECURE 2.0 Act, Congress expanded the ways you can use these accounts by introducing a new rollover option, which is especially helpful if the beneficiary has money left over after their education is complete.

    Starting in 2024, a 529 plan account beneficiary will have the opportunity to roll over up to $35,000 from your 529 college savings plans into a Roth IRA – and the best part is it’s tax and penalty-free.

    But there are some rules you’ll need to follow to take advantage of this retirement fund boost:

    01 | Annual and Lifetime Contribution Limits

    Any rollover from your 529 account is subject to annual Roth IRA contribution limits. For example, if in 2024 the Roth IRA contribution limit remains the same as in 2023 ($6,500 for individuals under 50), you can roll over an amount up to this limit, including yearly contributions withheld from your income. There is also a rollover contribution limit of $35,000 over your lifetime.

    02 | The 15-Year Rule

    To qualify for tax and penalty-free rollovers, the 529 plan must have been open for at least 15 years. This 15-year clock starts ticking from the day the 529 plan was initially opened, usually by a parent or grandparent. It’s crucial to remember that changing the beneficiary of the 529 plan at any point may potentially restart this 15-year clock.

    03 | 5-Year Rollover Blackout

    Funds that were contributed to your 529 plan within five years of the rollover date cannot be rolled over. Only contributions made outside of this five-year window are eligible. But you can continue to rollover funds as time goes on and the 5-year window moves farther away from the most recent contributions.

    Here’s an example of how these rules work in real life: Imagine your mother opened a 529 account for you in 2001. She contributed money to the account every year for 20 years, through 2020. When you graduated college in 2022, there were some funds left in the 529 account. You want to roll over these funds into a Roth IRA on January 1, 2024.  

    In this scenario, the account has been open for at least 15 years, so you can roll over funds into a Roth IRA, up to the annual contribution limit of $6,500 per year. But the funds you roll over from the 529 cannot include funds your mother contributed in the 5 years before your rollover date of January 1, 2024. That means you can’t roll over funds contributed to the 529 account between January 1, 2019 and January 1, 2024. 

    Let’s look at another example: Your father opened a 529 college savings account for you in 1998 and contributed money to it every year until your graduation from trade school in 2015. Since graduation, you and your employer have contributed a total of $3,000 to your retirement account this year. There is $10,000 left in the account and you want to roll over the funds into a Roth IRA on January 1, 2024. 

    In this example, the account has been open for more than 15 years and all of the funds in the account were contributed to it more than five years ago, so all of the funds are eligible for a rollover. However, you can only contribute up to $6,500 to your retirement accounts annually. Because of this, you can only roll over a maximum of $3,500 from your 529 account into your Roth IRA this year if you or your employer don’t make any more contributions to your retirement this year. After the rollover, you’ll have $6,500 in your 529 account at the end of 2024.

    In 2025, you’ll be able to roll over the remaining $6,500 from your 529 into your Roth IRA (if you make no other contributions from your income that year). 

    An Extra Bonus For Grandparent-Owned Accounts

    In order to be considered for federal financial aid, students must disclose their personal and family financial information on the Free Application for Federal Student Aid (FASFA). Funds in a 529 account created by a parent are counted as a financial asset of the student on the FAFSA application.

    But funds in a 529 account owned by a grandparent or other third party have never been counted as an asset for FAFSA purposes. Only money withdrawn from the account is considered untaxed income of the student which FAFSA considers in its application review.

    The big news is that with the new Secure 2.0 Act, any withdrawals from a grandparent-owned 529 for education expenses will no longer be considered untaxed income of the student, which means the funds will not hurt the student’s eligibility for federal aid.

    Planning for What’s Really Important

    While you take steps to secure your financial future, don’t forget to protect everything you’ve worked so hard to build. Your retirement savings is likely the largest asset you own, and making sure it’s managed and passed on in the best way possible is essential for your well-being and the future well-being of those you love.

    To make sure there’s a plan for your future, give our office a call. We’d be honored to learn more about your goals for your family and share with you the unique process we use to ensure everything you own and everyone you love is cared for, no matter what.

    Schedule a free 15-minute discovery call to get started.

    This article is a service of Jeannette Marsala, Personal Family Lawyer. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Life & Legacy Planning Session, during which you’ll get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by calling our office today to schedule a Life and Legacy Planning Session and mention this article to find out how to get this $750 session at no charge.

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