Practice Management
Nov 22, 2024|ByMark DiSipio, CIMA®
Key takeaways
- As we move into the season of giving, there are multiple strategies to engage your clients on around maximizing contributions to their 529 plans.
- Encourage clients to top-off gifting levels, consider superfunding accounts and have clients’ loved ones make the gift of education savings this year.
- By helping clients make these smart, timely moves, you’re not only ensuring they finish the year strong but also positioning them for long-term success in 2025 and beyond.
Smart Education Savings Moves to Share with Your Clients
The holidays are coming fast, filled with celebrations with friends and family, gift giving, and old and new traditions. While your clients are in the spirit of giving to loved ones, you as their financial advisor can help them give their children (or grandchildren) the gift of a brighter future by ensuring their education savings are on track – no wrapping paper required!
Planning for the future doesn’t take a holiday break, and the end of the year is an ideal time to check in on your clients’ goals, especially when it comes to their education savings. With a little strategic planning, you can help them close out 2024 strong and set themselves up for a successful 2025, all while still leaving time to enjoy the holiday cheer.
Here are five essential strategies to guide your clients through year-end 529 savings moves.
Max Out Contributions Before the Ball Drops
If you have clients who have been working towards their goals all year and are just shy of meeting the mark, help them cross the finish line by reminding them to max out contributions to their 529 plans. Maximizing contributions now could unlock significant benefits, particularly when it comes to tax savings1.
Many states offer tax deductions or credits for contributions made to 529 plans, allowing your clients to reduce their state taxable income. Some states allow deductions of $10,000 or more for joint filers, making it a great way to save both for future education and on taxes in the current year. On top of that, any investment growth within the 529 plan is tax-deferred, and withdrawals2 used for qualified education expenses are tax-free3 at the federal level.
Clients can contribute up to $18,000 per person ($36,000 for couples)4 without worrying about gift tax making the holidays a perfect time to hit that magic number. Don’t forget to remind your clients that it is not only parents who can contribute to a 529– grandparents, aunts, uncles, godparents and friends can all help build up that 529 spreading the holiday joy!
Turn That Year-End Bonus into a College Investment
Holiday bonuses and performance rewards are like little gifts that can help expedite financial goals and make a meaningful impact towards a child’s future education. Encourage your clients to "re-gift" a portion of their bonus or variable comp directly into their children’s or grandchildren’s 529 plans5, turning short-term rewards into long-term investments. It’s an easy and smart way to make progress toward their savings goals without touching their day-to-day finances.
As the New Year's countdown starts and resolutions begin, your clients can already check off a big financial goal before the countdown hits midnight. They’ll head into the new year feeling like they’ve set up their children’s future for success with the gift of opportunity.
Superfunding: The Gift that Keeps on Giving
For clients with more cash on hand (perhaps they sold a business or received an inheritance or big bonus), now’s the time to talk about "superfunding." Superfunding is a unique gifting aspect to 529s that allows clients to make up to five years’ worth of contributions to a 529 plan all at once ($90,000 for a single person, or $180,000 for a couple). That’s a lot of future tuition covered—tax-free. Here, you can get scheduled future contributions invested and growing early. Plus, it’s a pretty powerful way for grandparents or other relatives to leave a lasting legacy while reducing their taxable estate. Superfunding is more than just a strategy—it’s the gift that keeps on giving, year after year, as the funds grow tax-free6 in the account.
Check In on Investment Options
The end of the year is the perfect moment to reassess investment strategies in those education savings accounts. Maybe your clients’ kids are just starting out, in which case a more aggressive portfolio might make sense. Or maybe college is only a few years away, meaning it’s time to dial things down and focus on preserving what’s already been saved. Either way, it’s all about making sure the plan aligns with their future goals. Target-Enrollment 529 portfolios adjust automatically, so no need to constantly tweak them. Just set it, forget it, and let the account do the work! It’s always a good idea to check in, however; especially when life changes occur. With your guidance, they can make sure their investments are working as hard as possible to meet their future education expenses.
Gift a 529 Contribution Instead of a Sweater
Forget the video games, the gadgets, or another pair of socks! Encourage your clients to ask for (or give) something truly meaningful this year—529 plan contributions. Grandparents, aunts, uncles, or family friends can pitch in and make a direct deposit into the plan. It’s a win-win. Family members get to give a gift that is thoughtful and impactful, and your clients get a boost to their financial goals for their family.
This works great for birthdays, graduations, and other big moments, too.
Final Thoughts
The end of the year provides a unique window to review, reassess, and ramp up your clients’ education savings strategies. By helping them make these smart, timely moves, you’re not only ensuring they finish 2024 strong but also positioning them for long-term success in 2025 and beyond. With your guidance, they can enjoy the holidays knowing they’ve given the gift of a brighter financial future for their family—and isn’t that the best gift of all?
This season, help your clients wrap up their financial goals in a bow and start the new year with confidence. Together, you can make 2025 a year filled with opportunities, growth, and financial peace of mind.
Mark DiSipio, CIMA®
529 Sales Leader
Mark DiSipio CIMA®, is Vice President and 529 Sales Leader at BlackRock, responsible for business development and platform strategy for BlackRock’s 529 college savings platform.
Lacy Garcia
Founder & CEO of Willow
Lacy Garcia is the Founder & CEO of Willow, a wealthtech platform connecting individuals with financial advisors. She is a nationally recognized speaker and thought leader.
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1 Distribution must be used to pay for qualified higher education expenses at an eligible educational institution. Eligible educational institutions include colleges and universities that are eligible for Title IV federal student aid. A list of eligible schools is available here: https://fsapartners.ed.gov/knowledge-center/library/federal-school-code-lists/2024-07-26/2024-25-federal-school-code-list-participating-schools-august-2024
2 Withdrawals from a 529 plan are not subject to federal tax and generally not subject to state tax when used for qualified education expenses.
3 Withdrawals from a 529 plan are tax-free when used for qualified higher education expenses, which include tuition, mandatory fees, books, supplies, and for certain computer technology and equipment, room, board and off-campus housing expenses (as long as the cost does not exceed the cost of on-campus housing).
4 Inclusive of all gifts to the beneficiary, not just contributions to a 529 plan. An accelerated gifting tax provision, unique to 529 plan contributions, allows you to apply up to 5 years of gifts in a single year ($90,000/$180,000 maximum limits). Considered a completed gift, assets are thereby removed from your taxable estate. Consult your tax advisor for any limitations.
5 Considered a qualified expense for U.S. tax purposes. 529 plans cover tuition expenses up to $10,000 annually for K-12 public, private or parochial schools. For state tax treatment, check your individual state guidelines. Not all states consider this a qualified expense.
Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty, as well as state and local income taxes.
Investing involves risk, including possible loss of principal. Account Owners assume all investment risks as well as responsibility for any federal and state tax consequences.
Please note that any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; this communication was written to support the promotion or marketing of the matters addressed herein; and you should seek advice based on your particular circumstances from an independent tax advisor.
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