A Guide to 529 Plans and Alabama’s Special Promotion

On Wednesday, May 29th, the nation celebrated 529 Day, a day dedicated to raising awareness and understanding of 529 plans, a vital tool for education savings.

Let’s dive in to learn more about what 529 plans are, their benefits, and an exciting promotion for Alabama residents.

What is a 529 Plan?

A 529 plan is a tax-advantaged investment account that can be used to save for the educational costs of a designated beneficiary.

When you contribute to a 529 plan, your money is invested in mutual funds, ETFs, or other investment vehicles. This provides the potential for investment growth until the time of withdrawal.

Withdrawals for qualified education expenses are tax-free. These qualified expenses include funds spent on the beneficiary’s college tuition, K-12 tuition, room and board, student loan payments, and more.

What if You Don’t Use All the Money?

One question many people ask as they are considering a 529 plan is what happens if they do not use all the funds in the account. If the beneficiary does not use all the money in the 529 plan, there are several options available:

  • Transfer to Relatives: The owner of the account can change the beneficiary to another qualifying family member without incurring taxes or penalties.
  • Roll Over to Roth IRA: As of 2024, the SECURE 2.0 Act allows the owners of 529 plans to roll up to $35,000 of unused funds into the beneficiary’s Roth IRA, assuming certain qualifications are met. Keep in mind that there is an annual limit that will require owners to roll over the funds in smaller amounts over time, with $35,000 being the lifetime limit.
  • Withdraw with Penalty: You can withdraw the money from the investment account, but earnings will be subject to income tax and a 10% penalty.

Alabama State Tax Benefits

For Alabama residents, contributions to a 529 plan come with state tax benefits:

Single filers can deduct up to $5,000 in contributions from their state taxable income per year. Married taxpayers filing jointly can deduct up to $10,000 if both contribute.

5/29 Giveaway from CollegeCounts

To celebrate National 529 Day, CollegeCounts, Alabama’s 529 Plan, is hosting a special giveaway. Parents with children born between May 29, 2023, and May 29, 2024, are eligible to participate.

There will be 29 randomly selected winners who will each receive a $529 contribution to a CollegeCounts 529 account for their child. To be eligible, you must register by July 15, 2024.

This giveaway is a wonderful opportunity for new parents to jumpstart their child’s education savings.

National 529 Day serves as a reminder of the importance of planning for education expenses and the benefits of starting early. With the tax advantages and flexibility offered by 529 plans, they are a powerful tool for building a monetary foundation for your child’s educational future. For Alabama residents, the additional state tax benefits and special promotions make now an ideal time to consider opening or contributing to a 529 plan.




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Cory Reamer, is an Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Cory graduated as a student-athlete with a degree in Finance from The University of Alabama and is passionate about helping others on their financial journey. For more information, visit The Welch GroupConsult your financial advisor before acting on comments in this article. 




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