{"id":9431,"date":"2024-05-29T08:00:15","date_gmt":"2024-05-29T08:00:15","guid":{"rendered":"https:\/\/emoneyadvisor.com\/blog\/?post_type=thought_leadership&p=9431"},"modified":"2025-05-29T12:58:47","modified_gmt":"2025-05-29T12:58:47","slug":"savvy-education-planning-529-plan-to-roth-ira-and-more","status":"publish","type":"thought_leadership","link":"https:\/\/emoneyadvisor.com\/blog\/savvy-education-planning-529-plan-to-roth-ira-and-more\/","title":{"rendered":"Savvy Education Planning: 529 Plan to Roth IRA and More"},"content":{"rendered":"

College planning is not just a smart move for families,\u00a0it\u2019s\u00a0also a promising service area for financial advisors seeking to connect with the next generation of clients. A recent survey of advisors showed 78 percent view the 529 plan\u00a0in\u00a0particular\u00a0as a multigenerational tool that supports client retention and acquisition.1<\/sup><\/p>\n

Recent developments,\u00a0including a new rule that allows a 529 plan rollover to a Roth IRA, add a layer of complexity that emphasizes the value of financial advice. With 95 percent of financial planners providing education planning, it pays to explore how to differentiate your offering.2<\/sup><\/p>\n

Downbeat to Determined: The Power of Planning<\/strong><\/h2>\n

Before we dive into that, I wanted to share a story of when I was conducting a focus group.\u00a0I\u2019m\u00a0watching one of my advisors through one-way glass, and\u00a0he\u2019s\u00a0meeting with a guy who wanted financial planning, with dual goals of funding his\u00a0children\u2019s\u00a0education and his own retirement.<\/p>\n

The man’s demeanor was downcast. As it turned out, he had worked for a firm that went bankrupt during the tech bubble. In his paperwork, it showed he had stock options that\u00a0at\u00a0one\u00a0point\u00a0were worth seven figures (all in front of the decimal point!) and were now worthless. It was like having the winning lottery ticket and watching it blow down the drain.<\/p>\n

We went through the planning process and discovered that he had a diversified\u00a0portfolio,\u00a0and was setting aside money for college with 529 plans. He came in thinking\u00a0his\u00a0kids\u2019\u00a0college dreams were ruined\u00a0and he was going to have to work until the day he died. After the planning process, he knew that college\u00a0wasn\u2019t\u00a0out of reach with the help of loans and insightful planning. And if he worked until age 67, he\u00a0was going to\u00a0be able to retire comfortably.\u00a0That\u2019s\u00a0what I love about financial planning\u2014it can help answer those questions that keep people up at night and can help turn nightmares into pleasant dreams.<\/p>\n

With that said,\u00a0let\u2019s\u00a0explore three ways you can stand apart in helping guide families in paying for higher education.<\/p>\n

1. Stay Updated on College Savings Strategies<\/strong><\/h2>\n

There has been\u00a0quite\u00a0a\u00a0bit\u00a0of change in the college planning process, from an overhauled FAFSA\u00a0to shifts in tax law that make grandparent-owned 529 plans more valuable.\u00a0This\u00a0presents an opportunity to add value for your clients through education and taking advantage of strategies as they become available. (If you need a refresher on the impact of changes in tax law, catch the replay of our\u00a02024 Tax Legislation Insights, Proposals, and eMoney Analysis<\/strong><\/a>.<\/strong>)<\/p>\n

The big headline this year is that the SECURE 2.0 Act allows you to roll unused 529 assets\u2014up to a lifetime limit of $35,000\u2014into the account\u00a0beneficiary’s\u00a0Roth IRA without incurring the usual 10 percent penalty for nonqualified withdrawals or generating any taxable income.3<\/sup>\u00a0This\u00a0might be a relief to those worried about overfunding a 529 account.\u00a0Now,\u00a0there are conditions you must meet\u2014the account must have been open for at least 15 years, for example.\u00a0But this continues the trend of making these vehicles more flexible.<\/p>\n

One last note about 529s, which vary by state.\u00a0Identifying opportunities for state-matching funds or state income tax deductions for deposits can be a boon.<\/p>\n

I don’t want to leave out other ways to save for college. Only nine states offer prepaid tuition plans\u00a0currently open to new enrollees, but these should not\u00a0be overlooked.<\/p>\n

There are also Coverdell Education Savings Accounts, though they have income limits\u00a0and\u00a0the annual contribution limit is low.<\/p>\n

Finally,\u00a0money in a Roth IRA can\u00a0be used\u00a0to\u00a0cover qualified higher education costs without incurring the 10 percent early distribution penalty.<\/p>\n

2. Learn Ways to Add a Personal Touch<\/strong><\/h2>\n

When setting up an education goal for your client in your planning software,\u00a0take\u00a0advantage of features that can make it feel\u00a0more real\u00a0for them. Adding a photo of the college campus, the mascot, or the child who will be attending in a client portal can help keep clients focused on their goals.<\/p>\n

The most important thing to remember is to celebrate with your client. Mark your calendar for those\u00a0important\u00a0days or set an alert and send a personal note: selection\/acceptance letters, the\u00a0first day of class, internships, graduation, and celebrating when loans\u00a0are paid off.<\/p>\n

As an advisor, it was always fun to select gifts for the proud parents, like sending them a T-shirt or sweatshirt from the college their child has\u00a0been accepted\u00a0into.<\/p>\n

If their child is\u00a0just\u00a0starting to explore colleges, you can help them set aside money for college visits and maybe even help them plan the itinerary.<\/p>\n

It\u2019s\u00a0also crucial to emphasize financial literacy<\/a>. You want the next generation to feel prepared for college living. Setting up a checking and savings account and a credit card in their name (with a\u00a0parent\u2019s\u00a0backing) can help them start building credit, so check with your clients to see if\u00a0they\u2019d\u00a0like any assistance in this area.<\/p>\n

Our 2023 research<\/a> shows a significant link between client motivation and having a highly personalized financial planning experience.4<\/sup> Clients who experience personalized planning say their financial advisor contacts them on a regular basis to stay in sync and is open to discussing what they value most in life.<\/p>\n

3. Understand Your Client\u2019s \u201cWhy\u201d When It Comes to Education<\/strong><\/h2>\n

You\u00a0don\u2019t\u00a0want clients to end up financing a degree from a college\u00a0that\u2019s\u00a0a bad financial fit for their situation. Emotion can cloud decision-making in this area. Around\u00a058\u00a0percent of U.S. adults saving for both college and retirement say\u00a0they\u2019re\u00a0delaying retirement\u00a0\u201csignificantly or moderately due to these dual financial goals,\u201d\u00a0a 2023 survey shows.5<\/sup> I know I have more than once reminded a client: You can get a loan for college, but you\u00a0can\u2019t\u00a0get a loan for retirement.<\/p>\n

First, recognize the cultural, socioeconomic, and religious heritage that can impact your\u00a0clients\u2019\u00a0money behaviors.\u00a0That\u2019s\u00a0emotional intelligence at play. Our 2023 research revealed that only 34 percent of investors agreed with the\u00a0statement\u00a0\u201cMy advisor makes an effort to learn about my cultural values.\u201d4<\/sup>\u00a0So take the time to learn those\u00a0values,\u00a0and plan around them.<\/p>\n

Also,\u00a0don\u2019t\u00a0just talk to them about\u00a0the impact of\u00a0saving for college versus retirement\u2014show them the\u00a0impact\u00a0in a planning platform. Clients learn differently, and running a Monte Carlo simulation<\/a> that\u00a0visualizes an expected outcome and probability of success could be the input they need to make a good decision.<\/p>\n

Pursuing Education Goals with Confidence<\/strong><\/h2>\n

When you get it right, college planning can be a differentiator for your practice. The increasing complexity of college savings strategies (and the associated tax implications) highlights the need for professional guidance. By staying updated on the latest approaches, adding a personal touch to the planning process, and understanding\u00a0clients’\u00a0motivations for saving, you can make a significant impact as you build a relationship with the next generation<\/a>.<\/p>\n

If\u00a0you\u2019d\u00a0like to learn more about this topic, check out the article\u00a0How to Start the College Money Talk<\/a>, which includes a video featuring Nancy Paul, author of\u00a0\u201cThe Little Book About Scholarships.\u201d<\/p>\n

Sources:<\/p>\n

1. ISS Market Intelligence<\/em>. \u201c529 Industry Analysis,\u201d June 2023.<\/p>\n

2. The Cerulli Report<\/em>. \u201cState of U.S. Wealth Management Technology,” May 2024.<\/p>\n

3. Fidelity. \u201cHow Unused 529 Assets Can Help with Retirement Planning,\u201d May 2023.<\/p>\n

4. eMoney Beyond the Plan Research Study, June 2023, n=1,507.<\/p>\n

5. SOA Research Institute<\/em>. \u201cFinancial Perspectives on Aging and Retirement Across the Generations,\u201d July 2023.<\/p>\n

 <\/p>\n

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.<\/p>\n","protected":false},"author":91,"featured_media":9432,"template":"","thought_leadership_cat":[94],"class_list":["post-9431","thought_leadership","type-thought_leadership","status-publish","has-post-thumbnail","hentry","thought_leadership_cat-financial-planning"],"acf":{"left_sidebar_ads":false,"right_sidebar_ads":false},"yoast_head":"\nSavvy Education Planning: 529 Plan to Roth IRA and More<\/title>\n<meta name=\"description\" content=\"College planning is not just a smart move for families,\u00a0it\u2019s\u00a0also a promising service area for financial advisors seeking to connect with the next generation of clients. 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