Making Dollar$, Making $ense: Enhanced Benefits for 529 Plan Account Beneficiaries

Family members who planned ahead for college costs may now have an additional benefit available with the 529 college savings plans. For families that have funds left over in their 529 accounts after college was paid for, there have historically only been a few ways to extract the funds. Each way has its own set of advantages and disadvantages. Gains that are removed from the accounts and not used for higher education costs have always been taxed and hit with an additional 10% penalty. Your contributions always come back without taxation because the 529 plan was funded with after tax dollars. Another key point to remember is that the beneficiary can be changed to another child in the family or a person of direct lineage to that child and the money can be used in the same tax-free manner.

The new twist with 529 plans since the Secure Act 2.0 was passed is that you can potentially draw up to $35,000 from the 529 plan and have it moved to a Roth IRA in the beneficiary’s name. The ability to swap out college dollars that have accumulated, for retirement dollars, is a substantial upgrade in how the plans work. Now remember, the Roth is a longer-term retirement-based account, so it is important to keep the monies invested and working. Gains removed from the Roth account while under 59.5 years of age will subject the beneficiary to the same penalty and taxes that the 529 plan would have generated. The cherry on top with the Secure Act 2.0 is that you can now use the funds for anything in retirement via the Roth and never pay a dime in taxes while getting years of tax deferred growth and withdrawals.

The upgrade to these plans by way of the Secure Act 2.0 is a good thing and gives more flexibility to the account holders and beneficiaries. It is important to stay updated about changes in the retirement and savings landscape. At Marzano Capital Group, we strive to educate our clients along the way. If you want an education about how 529 plans work or how they have changed, please do not hesitate to reach out!

Securities offered through LPL Financial. Member FINRA/SIPC. Marzano Capital Group is an other business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance LLC, a registered investment advisor. Independent Advisor Alliance is a separate entity from LPL Financial.

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Jon Marzano, AIF®, Founding Partner, Managing Principal

As Managing Partner of Marzano Capital Group, Jonathan (Jon) is responsible for overseeing the strategic direction of the firm. A 20 plus year veteran of the industry, Jon’s work with Marzano Capital Group is based around his core belief in a straightforward and simplistic approach to the wealth management process. The desire for continued education and personal growth coupled with a strong work ethic drives me to constantly review and refresh our process in the office. We must continue to learn, as the industry evolves, in order to best serve our clients and their families. Our goal is to create the most predictable financial outcomes we can for our clients and that comes using the best technology, building deep relationships by way of meaningful communication, which is where we take the lead. These beliefs provide the foundation upon which Marzano Capital Group has been built. Jon began his career in financial services after graduating college in Charlotte, NC. First as a financial analyst for a Private Equity firm, then as a Financial Advisor for a national firm. After seeing the industry from the corporate side, Jon and his father sought out a new challenge and formed Marzano Capital Group in 2005 to offer clients independent advice, free from big corporate America. The firm has grown from a two-advisor firm to one that has multiple partners and a talented pool of upcoming associates. Outside of work, Jon is dedicated to growing and improving the communities that his clients live and work in. Jon has been involved with numerous nonprofit organizations and has served on too many boards to list them all by name. Jon has two adult children, Kaeley and Carter. Kaeley is a recent college graduate and is in sales with a technology company based out of Raleigh, NC. Carter will make this world a better place in the trade industry and welding has become his passion. As a father, I could not be prouder of the accomplishments of my kids. I have learned that if you love what you do, you will never work a day in your life. My hopes are that my children feel the same passion for their work as I do.

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