The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 is a recent piece of legislation that expands upon the original SECURE Act that was signed into law in December 2019. The new bill contains a range of provisions aimed at improving retirement savings, and one area of focus is 529 college savings plans.
529 plans are tax-advantaged savings accounts that allow families to save for college expenses. The funds in the account grow tax-free and can be withdrawn tax-free if they are used for qualified education expenses such as tuition, fees, books, and room and board. Currently, there are two types of 529 plans: prepaid tuition plans and savings plans. The majority of 529 plans are savings plans.
One of the changes in the SECURE Act 2.0 is the expansion of 529 plan rules to allow funds to be used for apprenticeships, homeschooling, and student loan repayments. Under the new law, only qualified education expenses were eligible for tax-free withdrawals from a 529 plan. However, the SECURE Act 2.0 now allows up to $10,000 in tax-free withdrawals each year for apprenticeship programs and up to $10,000 in tax-free withdrawals over the borrower’s lifetime for student loan repayments. In addition, up to $10,000 in tax-free withdrawals is now allowed for homeschooling expenses.
These changes give families more flexibility in how they use their 529 plan funds and could encourage more families to start saving in a 529 plan. For example, if a child decides not to go to college or receives a scholarship, the funds in the 529 plan can now be used for other qualified education expenses or to pay off student loans. This makes 529 plans more appealing to families who may have been hesitant to invest in them in the past.
Another change under the SECURE Act 2.0 is the ability to make additional contributions to a 529 plan after a child turns 18. Previously, contributions to a 529 plan had to stop once the beneficiary turned 18 or finished college. However, the new law now allows parents to continue making contributions to a 529 plan for up to 10 years after the beneficiary turns 18. This could be beneficial for families who have children who take a gap year or who decide to go back to school later in life.
Overall, the SECURE Act 2.0 could have a positive impact on families who are saving for college. The expanded rules for 529 plans give families more flexibility in how they use their savings and could encourage more families to start saving in a 529 plan. With the recent changes to 529 plans under the SECURE Act 2.0, it is essential for families to work with a financial advisor who is knowledgeable about the new law and can help them make the most of their 529 plan.
Acorn Financial is a local financial advisor in Nashua, New Hampshire that can help families navigate the complex world of college savings. The team at Acorn Financial can provide personalized advice on which college savings plan is right for your family and can help you create a plan to reach your savings goals. With the recent changes to 529 plans under the SECURE Act 2.0, now is an excellent time to speak with a financial advisor to ensure that you are taking advantage of all the benefits that these plans have to offer.