Our Thoughts

Give Your 529 Savings a Boost

A new bipartisan bill, the Boost Saving for College Act, introduced last April by Senators Richard Burr (R-NC) and Bob Casey (D-PA) aims to address the rising price of college tuition and the growing concerns of many families that they may not be able to afford higher education for their children.
As college tuition costs continue to skyrocket (increasing by over 13% in the last 5 years, and 24% in the five years before that), putting aside savings early and often, especially in a tax-advantaged 529 plan, is one of the most important decisions a parent can make.
While many incentives are currently in place to encourage savings for retirement in 401ks and IRA accounts, until now there has been no significant legislation to make investing for education as desirable. Enter the Boost Saving for College Act.
The bill features four main components:
1. Currently, the IRS offers something called a “Saver’s Credit” which offers a tax break of up to $2,000 to incentivize lower and middle-income families to contribute to a retirement savings plan. As part of the Boost Act, a similar tax credit of up to $2,000 would be offered to match any savings placed in 529 accounts. Of course, income phase-outs will apply.

2. Much the way many employers now offer to match their employee’s contributions to 401k plans, the Boost Act would have a provision allowing them to also match 529 contributions with a tax-deductible deposit of up to $1,000. Over a ten-year period, those matching funds combined with market growth could equal the cost of roughly one year at a public university.

3. When a client asks whether they should prioritize college savings or retirement with their money, almost every advisor will recommend the latter. One of the more intriguing aspects of the Boost Act would be the ability to roll any unused portion of a 529 account into a Roth IRA belonging to EITHER the owner or beneficiary of the plan. This option offers a significant benefit to families whose child receives scholarship funds to cover the bulk of their education costs, or who simply decides not to pursue a degree. As long as the 529 has been open for 10 or more years, the assets could be transferred to a Roth IRA without penalty.

4. As the regulations stand now, if a parent opens a 529 account for their child, and that child later develops a disability that would prevent them from attending college, a hefty penalty is assessed on any funds withdrawn from the 529 to assist in paying for long-term care needs. Under the Boost Act, families could transfer those funds into a tax-free ABLE (Achieving A Better Life Experience) account to be used to address the child’s actual needs while allowing them to still remain eligible for Medicaid and Supplemental Security Income benefits.
The only downside? While the bill has received widespread support across party lines, it order to pass through Congress it will need to be added to a larger piece of tax legislation, and those can be difficult to gain consensus on in an election year.