By Lael M. Oldmixon, M.Ed , Executive Director, Education Trust of Alaska

It’s October, and we must take advantage of every opportunity to make metaphors about sweets treats like the benefits 529 savers are reaping with updates to the IRS Tax Code and the FAFSA. The past few years have brought significant changes to education savings, especially with the updates to the FAFSA and the enhancements to 529 plans through the SECURE Act and SECURE 2.0. The changes have two significant benefits and address barriers that have spooked potential savers for years! 

Changes to Free Application for Federal Student Aid (FAFSA). 

The FAFSA has undergone a significant overhaul, simplifying the application process. The redesigned form is more user-friendly, with more straightforward instructions and fewer questions. The effort to improve the FAFSA process is one many in higher education hope will increase access to need-based and other Federal Aid. 

The FAFSA Simplification Act (2022) also had positive takeaways for 529 beneficiaries. The Act, which went into effect in 2024, no longer considers 529 plans owned by friends, relatives, or grandparents as student assets in the Federal Aid calculation. Withdrawals from these accounts will no longer count as student income and won’t directly impact a student’s Federal financial aid eligibility.  

Even though the impact was quite small before, this change has removed a barrier and area of concern for many grandparents, friends, and relatives who wish to help their loved ones save for future education. 

Find more about the changes to the FAFSA at https://studentaid.gov/.

Changes because of SECURE Act 2.0 

The SECURE Act of 2020 included two provisions that expand 529 allowable educational expenses, including student loan payments (with a lifetime cap of $10,000) and qualified apprenticeship program expenses.

In late 2022, Congress passed SECURE Act 2.0, which expanded retirement benefits and included an enhancement to the 529 plans: making rollovers of unused funds to a Roth IRA a qualified expense. 529 plan owners can roll over up to $35,000 of funds into a Roth IRA for the beneficiary. The rollover is tax- and penalty-free, meaning beneficiaries can avoid taxes and penalties for nonqualified withdrawals while boosting their retirement savings.

To find out more about Secure 2.0, visit https://www.savingforcollege.com/article/roll-over-529-plan-funds-to-a-roth-ira.

Savers who hope for more sweet changes to 529 plans in the future can rest assured that the superheroes at the Colleges Savings Plans network are advocating for changes that will make saving easier, expand accessibility for all types of educational pathways, and tackle the multi-trillion-dollar monster that is student debt in the U.S. 

About the author:

Lael M. Oldmixon, M.Ed , is the Executive Director of the Education Trust of Alaska, which offers Alaska’s three 529 plans, Alaska 529, the  T.Rowe Price College Savings Plan, and the  John Hancock Freedom 529. She lives in Alaska with her spouse, two children, and two dogs.