The recent pandemic brought about a whirlwind of legislation changes. Many of these changes were proposed to help Americans, young and old, cope with the financial distress that has come with COVID-19.
Paying for college is one aspect of finance that is always immensely stressful for anyone. While college savings is crucial, for many people, it has been on the backburner. Luckily, one recent legislative modification that is being put into action is an adjustment on how 529 college savings plans can be used, allowing for them to be used for K-12 education as well as college, on top of changing policies that often affect a student’s financial aid.
Top Changes in 529 Plans, College Planning, and Paying for College
1. Contributions from Non-Parents
One significant change in 529 college saving plans that can help students with their college finances is how non-parental contributions affect your financial aid and payments. With the current legislation, 529 plans used to help pay for education are considered untaxed student income, meaning that if used, money from a 529 plan can take away from a student’s financial aid offered from their school.
With the modifications in legislation that take effect with the 2023-2024 school year relating to the free application for federal student aid (FASFA), students will no longer have to report their cash support, which is what money from a non-parental 529 investment would be considered. This will allow them to use distributions from a 529 plan without their financial aid being dramatically affected.
2. Paying Off Student Loans
The Setting Every Community Up for Retirement Enhancement Act (SECURE) of 2019 also made changes to 529 plans, which can now help pay off parts of student loans for the account beneficiary or their siblings. Before, student debt did not count as a qualified expense for 529 plans to pay. The legislation that accompanied the SECURE Act helped change that, but it did put a cap of $10,000 per individual when paying off student loans with distributions from a 529 plan. Using a college planner can help you navigate these changes.
3. Generous Cap on Investments
The 529 plans set a much more generous cap on investments compared to other savings plans. Parents can contribute as much as they want to a 529 investment plan to help pay off the beneficiary’s qualified education expenses. The caps on balances of 529 investments differ depending on which state one is in, but they range from $235,000 to over $500,000. There is also no income restriction for setting up a 529 plan, unlike other savings accounts that may require a couple’s income to be below a certain point.
Planning to Pay for College
College finances can be extremely stressful. Unfortunately, no rule book tells you how to plan for all the different things you’ll have to pay for during and after college, from taking out student loans to paying your student debt.
Here at College Benefits Research Group, CBRG for short, our college planners understand just how difficult it can be to figure out your finances for college. That’s why we offer classes that help current, and future students plan for college and all the financial aspects that go with it. From 529 plans to FASFAs, we’ve got you covered. To learn more about the classes we offer that can help you plan for college, visit our course schedule here.