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July 2026 Client Profile

Emily, a high school senior, just landed a full-ride college scholarship covering every dollar of tuition, fees, books, and room and board. Her parents, Andrew and Leah, open the statement and see $75,000 still sitting in the 529 plan you started for Emily when she was born.

Under the SECURE 2.0 rule, you can roll up to $35,000 lifetime— tax- and penalty-free—straight into Emily’s Roth IRA. Because the account is already 18 years old and meets the five-year holding rule, you transfer $7,500 this year (the 2026 annual limit, assuming Emily has earned income), then repeat annually until the $35,000 cap is reached. The money now works for her retirement instead of sitting idle.

For the remaining $40,000, you withdraw an amount equal to the scholarship value, avoiding the 10% penalty (though earnings are taxable as ordinary income). You can use the funds for a gap year, study abroad, or graduate program later. Andrew and Leah turned “leftover” college savings into a powerful retirement head start for Emily.

Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.

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May 2026 Client Profile

The Thompson family faced a familiar challenge: funding their daughter Mia’s four-year degree at a public state university, with annual costs reaching $28,000, totaling over $112,000.

They started early and regularly contributed to a 529 college savings plan. By Mia’s senior year of high school, the account had $38,000, supported by consistent $4,000 yearly deposits and years of tax-advantaged growth.

Mia applied aggressively for aid. She received a $9,000 need-based Pell Grant, $3,800 in federally subsidized loans, and two private merit scholarships totaling $5,000. Her campus work-study job contributed $3,200 annually.

The parents took an $18,000 federal Parent PLUS loan at a fixed rate, planning to refinance if rates dropped later. They also redirected discretionary spending — vacations became staycations, and dining out became rare — to free up $6,000 annually.

Through disciplined saving, maximized grants and scholarships, part-time work, and modest borrowing, the Thompsons covered Mia’s education without crippling debt. The experience reinforced a key lesson: early planning, open family conversations, and exploring every funding option turn an intimidating expense into a manageable shared goal.

Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.

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529 College Savings Plan to Minimize Taxes

A 529 college savings plan* is a popular way for families to save for higher education expenses while enjoying significant tax advantages. Contributions grow tax-free when used for qualified education costs, such as tuition, books, and room and board. To maximize these benefits, consider contributing early and regularly, allowing your investments more time to grow.

Changes under the One Big Beautiful Bill Act (OBBBA) make 529 plans more flexible than ever for covering college and other educational needs. When the time comes, you can take tax-free withdrawals to pay for qualified education expenses. Additionally, up to $10,000 (lifetime limit per beneficiary) from these plans can be used to pay qualified student loans for the beneficiary and any siblings.

Starting in 2026, families can withdraw up to $20,000 per year per beneficiary from 529 plans for qualified K—12 expenses — up from the previous annual limit of $10,000. Qualified expenses now include not only tuition but also curriculum and instructional materials (such as books or online courses), tutoring by licensed or expert instructors, dual-enrollment fees, standardized test (e.g., SAT/ACT) fees, and educational therapies for students with disabilities.

Distributions may now be used tax-free for training registered under the Workforce Innovation and Opportunity Act, apprenticeships, and state-licensed certifications (specific qualifications may apply). Qualified expenses include tuition, fees, books, supplies, and exam fees in career training and continuing education.

A key to minimizing taxes is to take advantage of state tax deductions or credits offered for 529 contributions. Many states provide incentives that reduce your state tax bill dollar-for-dollar up to a certain limit. Make sure to check your state’s rules to maximize these benefits. Talk to your tax professional about your unique strategy to minimize taxes while funding educational needs.

*Certain requirements may apply. Before investing, read the program offering statement and consider the investment objectives, risks, charges, and expenses. These plans are not guaranteed by any state or federal agency. If you are not a taxpayer of the state offering the plan, consider before investing whether you or the designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in that state’s qualified tuition program.

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October 2024 Question and Answer

QUESTION:

My daughter is paying private high school tuition for my two grandchildren. Is it true that I can take tax-free distributions from a 529 plan to help pay these costs?

ANSWER:

Federal tax laws allow tax-free distributions of up to $10,000 per student per year to pay tuition for elementary and secondary private and parochial schools. However, each state manages its own 529 plan limits and potential tax deductions, so check with your state before taking action.

Take advantage of the new tax law, but also look into giving up to $18,000 annually tax-free to each grandchild (or $36,000 a year if you and your spouse make gifts).

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Start Your College Grad on the Path to Becoming a Millionaire

You may be able to do this utilizing any unused funds in the student’s 529 Plan. The IRS now allows rollovers of these funds to a Roth IRA in the child’s name.

REQUIREMENTS

You must have owned the 529 account for at least 15 years before rollovers are allowed. Contributions made in the five years before distributions start — including the associated earnings — are ineligible for a tax-free rollover. Rollovers can’t exceed the 2024 annual Roth contribution limit ($7,000/$8,000 for ages 50 and older).

The lifetime 529 rollover limit is $35,000, so you’d have to do a rollover annually for several years. As the owner of the Roth IRA, your graduate must have earned income at least equal to the amount of the annual rollover.

THE MILLIONAIRE PART

Look at the hypothetical example (chart) of making rollovers of $35,000 in remaining funds over five years. It assumes the annual contribution limit remains $7,000, your child makes no additional contributions, and the IRA earns a hypothetical 7% compounded interest monthly for 45 years. Consult your tax advisor about your situation.