Why Advisors Should Educate Clients on 529 Plans

Most Americans don't understand their uses, which have been expanded over the last seven years, says Edward Jones research.

By Rethinking65

It’s common for people to be concerned about overfunding 529 plans, but most Americans don’t understand all they can be used for, says a new Edward Jones survey, which polled more than 2,200 adults in April.

Only one out of every four adults (25%) knows that 529 plans can be used to fund more than just higher education, according to the survey conducted for Edward Jones by Morning Consult. Less than half know that they can use 529 funds for vocational and trade schools (47%), room and board (43%), student-loan repayment (41%), and rollovers to a Roth IRA (19%), the results say. And half of Americans (50%) still don’t know what a 529 plan is.

Compared with Edward Jones’ 2023 survey, this year’s results show a 6% increase in the number of adults who are more likely to consider saving for a vocational or trade school (27%). The survey attributes this to the impact of inflation/high interest rates.

Perhaps the least understood use of a 529 plan is the rollover to a Roth IRA, which became permissible with the enactment of the Secure 2.0 Act in 2022. Account owners can roll over up to $35,000 of unused 529 assets to a Roth IRA for the 529 beneficiary.

Tax law changes over the past seven years have made 529 plans more useful. They “can often be used tax-free and penalty-free for secondary schools, technology purchases to further education and much more,” Andy Esser, an Edward Jones financial advisor in Durham, N.C., said in a press release. “As a financial advisor and parent, I see first-hand the varying benefits of 529 funds — no matter what path a child may choose. Educating families on those benefits leads to more impactful results.”

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