B.14.1 529 Plans In-Depth

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1 A. Professional Conduct and Regulation

A.1 Code of Ethics and Standards of Conduct A.1.1 The Six Ethical Principles A.2 Procedural Rules and Discipline A.2.1 Fitness Standards for Candidates A.3 Financial Institutions Overview A.3.1 Broker-Dealers vs. RIAs A.4 SEC and Securities Regulation A.4.1 FINRA and Broker-Dealer Regulation A.4.2 State Securities Regulation A.5 Consumer Protection Laws A.5.1 Privacy and Confidentiality Requirements A.6 Fiduciary Duty and Application

2 B. General Principles of Financial Planning

B.7 The Financial Planning Process B.7.1 Establishing the Client Relationship B.7.2 Gathering Client Data and Goals B.8 Personal Financial Statements B.8.1 Key Financial Ratios B.9 Cash Flow Management B.9.1 Emergency Fund Planning B.10 Debt Management Strategies B.10.1 Mortgage and Home Financing B.11 Economic Concepts B.11.1 Planning for Inflation B.12 Time Value of Money Concepts B.12.1 TVM Calculations and Applications B.12.2 Loan Amortization B.13 Education Needs Analysis B.14 Education Savings Vehicles B.14.1 529 Plans In-Depth B.15 Education Funding Strategies B.16 Gift/Income Tax Strategies

3 C. Risk Management and Insurance Planning

C.17 Principles of Risk and Insurance C.17.1 Risk Management Process C.18 Analysis of Risk Exposures C.19 Health Insurance Fundamentals C.19.1 Types of Health Insurance Plans C.20 Disability Income Insurance C.20.1 Disability Policy Features C.21 Long-Term Care Insurance C.22 Annuities Overview C.22.1 Fixed vs. Variable Annuities C.23 Life Insurance Fundamentals C.23.1 Types of Life Insurance C.24 Business Owner Insurance Solutions C.25 Insurance Needs Analysis C.26 Insurance Policy and Company Selection

4 D. Investment Planning

D.27 Equity Securities D.27.1 Fixed Income Securities D.27.2 Mutual Funds and ETFs D.27.3 Taxation of Investment Vehicles D.28 Systematic Risk D.28.1 Unsystematic Risk D.29 Economic and Market Cycles D.30 Measures of Risk and Return D.30.1 Investment Performance Measures D.31 Asset Allocation Strategies D.31.1 Portfolio Diversification D.32 Bond and Stock Valuation D.32.1 Stock Valuation Models D.33 Investment Policy Statement D.33.1 Modern Portfolio Theory D.34 Active vs. Passive Investing D.34.1 Common Investment Strategies D.35 Alternative Investments D.35.1 Options and Derivatives

5 E. Tax Planning

E.36 Income Tax Fundamentals E.36.1 Filing Status and Tax Brackets E.37 Types of Income E.37.1 Deductions and Credits E.37.2 Capital Gains and Losses E.38 Business Entity Taxation E.38.1 Self-Employment Tax E.39 Taxation of Trusts and Estates E.40 Tax Reduction Strategies E.40.1 Retirement Account Tax Strategies E.41 Property Transactions E.41.1 Basis Rules for Acquired Property E.42 AMT and NIIT E.42.1 Special Tax Situations E.43 Charitable Giving Strategies

6 F. Retirement Savings and Income Planning

F.44 Retirement Needs Analysis F.44.1 Sources of Retirement Income F.45 Social Security Benefits F.45.1 Social Security Claiming Strategies F.45.2 Medicare Planning F.46 Eldercare and Special Needs Planning F.47 Qualified Plan Overview F.47.1 Defined Benefit Pension Plans F.47.2 Defined Contribution Plans F.48 Eligibility and Vesting F.48.1 Coverage and Discrimination Testing F.48.2 Contribution and Benefit Limits F.48.3 401(k) Plan Features F.49 Non-Qualified Deferred Compensation F.49.1 Executive Compensation Plans F.50 Retirement Plan Selection for Businesses F.50.1 Individual Retirement Accounts F.51 Distribution Rules F.51.1 Required Minimum Distributions F.52 Retirement Income Strategies F.52.1 Tax-Efficient Withdrawal Strategies F.53 Business Succession Planning

7 G. Estate Planning

G.54 Property Titling and Beneficiary Designations G.54.1 Beneficiary Designations G.55 Strategies to Transfer Property G.55.1 Lifetime Gifting Strategies G.56 Wills and Estate Documents G.56.1 Powers of Attorney G.56.2 Advance Directives and Healthcare Documents G.57 Federal Gift Tax G.57.1 Federal Estate Tax G.57.2 Generation-Skipping Transfer Tax G.58 Sources for Estate Liquidity G.58.1 Life Insurance for Estate Liquidity G.59 Trust Fundamentals G.59.1 Revocable Living Trusts G.59.2 Irrevocable Trusts G.59.3 Trust Income Taxation G.60 Marital Deduction Planning G.60.1 QTIP Trusts G.60.2 Portability of Estate Tax Exemption G.61 Intra-family and Business Transfer Techniques G.61.1 Family Limited Partnerships G.61.2 GRATs and IDGTs G.62 Postmortem Estate Planning Techniques G.62.1 Disclaimer Planning G.62.2 Estate Tax Elections G.63 Planning for Divorce and Unmarried Couples G.63.1 Estate Planning for Unmarried Couples G.63.2 Planning for Blended Families G.64 Planning for Special Needs and Circumstances G.64.1 Special Needs Trusts G.64.2 ABLE Accounts

8 H. Psychology of Financial Planning

H.65 Client and Planner Attitudes, Values, Biases H.65.1 Money Scripts and Money Attitudes H.65.2 Planner Self-Awareness H.66 Behavioral Finance H.66.1 Cognitive Biases H.66.2 Emotional Biases H.66.3 Heuristics and Mental Accounting H.67 Sources of Money Conflict H.67.1 Couples and Money Conflict H.67.2 Family and Intergenerational Money Conflict H.68 Principles of Counseling H.68.1 Therapeutic Techniques in Financial Planning H.68.2 Professional Boundaries and Referrals H.69 General Principles of Effective Communication H.69.1 Listening and Questioning Skills H.69.2 Managing Difficult Conversations H.69.3 Non-Verbal Communication H.70 Crisis Events with Severe Consequences H.70.1 Death and Divorce H.70.2 Job Loss and Health Crisis H.70.3 Sudden Wealth and Sudden Loss H.70.4 Natural Disasters and Traumatic Events

B.14.1 529 Plans In-Depth

Key Takeaways Explain This Topic AI

SECURE 2.0 allows up to $35,000 lifetime rollover from 529 to beneficiary's Roth IRA if account open 15+ years

529-to-Roth rollovers follow annual Roth contribution limits ($7,500 in 2026) and require beneficiary earned income

K-12 withdrawals limited to $20,000/year per student from 2026 under OBBBA ($10,000 through 2025)

State tax deductions vary widely; some states offer deductions only for contributions to their own state plan

Non-qualified withdrawals incur income tax plus 10% penalty on earnings; exceptions include death, disability, and scholarships

Last updated: October 2026

529 Plans In-Depth

529 plans have become the cornerstone of education savings strategies, offering unmatched tax benefits and flexibility. Recent legislation, particularly SECURE 2.0, has made these accounts even more valuable by addressing the long-standing concern about unused funds.

529 Plan Structure and Benefits
Tax Advantages

Federal Tax Benefits:

Contributions grow tax-deferred
Qualified withdrawals are completely tax-free
No federal tax deduction for contributions (but contributions reduce estate)

State Tax Benefits:

Over 30 states offer income tax deductions or credits for contributions
Some states limit benefits to their own state's plan
A few states offer unlimited deductions
Some states offer deductions for contributing to ANY state's 529
State Tax Deduction Comparison (2025)

State Approach Examples Details
Deduction for own state plan only New York, Virginia, Colorado Must use state plan to get deduction
Deduction for any 529 plan Arizona, Kansas, Missouri, Montana Flexibility to choose best plan
Tax credit Indiana, Vermont Credit (not deduction) for contributions
Unlimited deduction Colorado, New Mexico No cap on deduction amount
No state income tax Florida, Texas, Washington No deduction available (no income tax)
No deduction offered California, Delaware Have income tax but no 529 deduction
Qualified Education Expenses
Higher Education (Post-Secondary)

Expense Category Qualified? Notes
Tuition and fees Yes Any accredited institution
Books and supplies Yes Required for enrollment
Room and board Yes If enrolled at least half-time; limited to COA or actual cost
Computers and equipment Yes Including internet access
Student loan repayment Yes $10,000 lifetime limit per beneficiary
Apprenticeship programs Yes Registered apprenticeships
K-12 Education Changes (OBBBA)

Change Before After
Annual K-12 limit $10,000 (through 2025) $20,000 (from 2026)
Curriculum and curricular materials Not qualified Qualified (distributions after July 4, 2025)
Standardized and admission test fees Not qualified Qualified (after July 4, 2025)
Tutoring by a qualified outside tutor Not qualified Qualified (after July 4, 2025)
SECURE 2.0: 529-to-Roth IRA Rollover

One of the most significant changes to 529 plans came with SECURE 2.0, effective January 1, 2024. Unused 529 funds can now be rolled over to the beneficiary's Roth IRA.

Rollover Requirements

Requirement Details
Account age 529 must have been open for at least 15 years
Lifetime limit $35,000 per beneficiary (lifetime)

Annual limit Subject to annual Roth IRA contribution limit ($7,000 in 2025; $7,500 in 2026); catch-up contributions likely NOT eligible*

Earned income Beneficiary must have earned income >= rollover amount
Recent contributions Contributions and earnings from last 5 years cannot be rolled over
Same beneficiary 529 beneficiary and Roth IRA owner must be the same person
Income limits NOT subject to Roth IRA income limits
Key Planning Considerations

15-Year Clock: The account must be open 15+ years from the original open date. Changing beneficiaries may restart the clock (IRS guidance pending). Plan ahead - open 529s early even with minimal contributions.

Coordination with Regular Roth Contributions: The rollover counts toward the annual Roth limit. Cannot contribute $7,500 AND roll over $7,500 in the same year (2026).

* Note on Catch-Up Contributions: The $8,600 age-50+ limit (including the $1,100 catch-up) likely does NOT apply to 529-to-Roth rollovers. The statute references "annual contribution limit" not "catch-up limit." IRS guidance is pending, but most practitioners assume the $7,500 base limit applies.

Income Limits Bypass: Unlike regular Roth contributions, 529 rollovers are NOT subject to income limits. High earners can use this as a backdoor Roth strategy.

529 Plan Ownership and Control

The account owner (not the beneficiary) maintains full control:

Change beneficiary at any time (to family member)
Change investment allocations (twice per year)
Withdraw funds (subject to tax/penalty if non-qualified)
Name successor owner
Determine timing and amounts of distributions
Beneficiary Change Rules

Funds can be transferred to a new beneficiary tax-free if the new beneficiary is a family member of the original: Spouse, child, grandchild, parent, grandparent, sibling, stepparent, niece, nephew, aunt, uncle, first cousin, or in-laws.

Non-Qualified Withdrawals
Tax and Penalty Treatment

When funds are used for non-qualified expenses:

Earnings portion is taxed as ordinary income
10% penalty applies to earnings
Principal (contributions) is returned tax-free and penalty-free
Penalty Exceptions

The 10% penalty is waived (but earnings are still taxable) for:

Beneficiary receives tax-free scholarship
Beneficiary dies or becomes disabled
Attendance at U.S. military academy
529 Plan Gift and Estate Tax Treatment
Gift Tax Benefits
Contributions qualify for annual gift tax exclusion ($19,000 per donor in 2025-2026)
Married couples can gift split for $38,000 per beneficiary
Superfunding: Up to 5 years of gifts in one year ($95,000 single; $190,000 married)
Estate Tax Benefits
529 contributions are removed from the donor's estate
Superfunded amounts: If donor dies during 5-year period, prorated amount returns to estate
Account owner can retain control without estate inclusion

CFP Exam Tip: The combination of gift tax exclusion, estate removal, and retained control makes 529s a powerful estate planning tool, especially for grandparents.