ensure both business and personal finances are optimized.
by jackie meyer, cpa
jackie meyer, cpa is president and founder of meyer tax consulting llc, taxplaniq, and concierge accountant coaching programs in southlake, texas, with over 20 years of experience, she founded and successfully sold her own cpa firm for seven figures, leveraging her trademarked roi method of value pricing tax advisory services. she specializes in tax planning for executives with a high investment return. meyer is a serial entrepreneur, speaker, and consultant dedicated to revolutionizing the fintech, accounting, and entrepreneurial landscapes. as a cpa and certified tax coach, she offers concierge tax and accounting services to assist clients with anything from income-shifting strategies to managing a family business in qbo.
most business owners are adept at navigating the complexities of running a company. however, when it comes to personal financial planning, particularly concerning education expenses specialized attention is often required.
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it’s been widely touted that a 529 college savings plan is a powerful tool that not only aids in funding education but also offers significant tax benefits. understanding how to leverage a 529 account can enhance financial strategy for your business clients, ensuring both business and personal finances are optimized.
understanding 529 college savings plans
a 529 plan is a tax-advantaged investment account designed to encourage saving for future education expenses. contributions to a 529 account grow tax-deferred, and withdrawals for qualified education expenses are tax-free at the federal level. many states also offer tax deductions or credits for contributions to their 529 plans, providing additional incentives. these plans are not limited to college expenses; they can also cover k-12 tuition, apprenticeship programs, and, as of 2024, allow for rollovers into roth iras under certain conditions.
tax benefits of 529 savings plans
the primary tax advantage of a 529 savings plan is the tax-free growth of investments when used for qualified education expenses. this means that the earnings on your contributions are not subject to federal income tax, allowing your investment to compound more effectively over time. additionally, over 30 states offer full or partial state tax deductions or credits for 529 plan contributions, enhancing the appeal of these plans.
strategic use of 529 accounts for business owners
for business owners, incorporating a 529 account into their financial plan can serve multiple purposes:
- employee benefits: offering contributions to employees’ 529 plans can be an attractive benefit, aiding in employee retention and satisfaction. some states provide tax incentives to employers who contribute to their employees’ 529 accounts.
- estate planning: contributions to a 529 plan are considered completed gifts, which can help reduce the size of your taxable estate. in 2024, individuals can gift up to $18,000 per beneficiary without incurring gift tax, and married couples can gift up to $36,000.
- flexible funding: if your child decides not to pursue higher education, the secure 2.0 act allows for unused 529 funds to be rolled over into a roth ira, up to a lifetime maximum of $35,000, provided certain conditions are met.
recent changes enhancing 529 plan flexibility
the secure 2.0 act, effective in 2024, introduced significant enhancements to 529 plans:
- 529-to-roth ira rollovers: beneficiaries can roll over up to $35,000 from a 529 plan to a roth ira without taxes or penalties, provided the 529 account has been open for at least 15 years, and the rollover adheres to annual roth ira contribution limits.
- expanded qualified expenses: 529 plans now cover a broader range of educational expenses, including certain apprenticeship costs and up to $10,000 in student loan repayments.
considerations for implementing a 529 savings plan
while 529 plans offer numerous benefits, it’s essential to consider the following:
- state-specific benefits: tax deductions and credits vary by state. some states offer tax benefits for contributions to any 529 plan, while others restrict benefits to in-state plans. review your state’s specific rules to maximize tax advantages.
- contribution limits: while there are no annual federal contribution limits, contributions are subject to gift tax rules. in 2024, the annual gift tax exclusion is $18,000 per beneficiary. additionally, each state sets a maximum aggregate limit for 529 accounts, ranging from $235,000 to over $500,000.
- investment options: 529 plans offer various investment portfolios, including age-based options that adjust asset allocation as the beneficiary approaches college age. evaluate the investment choices to align with your risk tolerance and financial goals.
looking ahead: integrating 529 plans into your financial strategy
incorporating a 529 college savings plan into your client’s financial strategy can provide substantial tax benefits, flexibility in funding education expenses and ultimately better position you as their trusted advisor on more than tax and accounting issues. in the end, as a business owner, understanding and utilizing these plans can enhance their financial planning, benefiting family and business.