Last week the S&P 500 set another high-water mark. It’s been 377 days since a drop of over 2% -- the longest stretch since the 2008-09 financial crisis.[1] If you read financial news you’ll see that some people are expecting a serious market crash, and just as many are predicting continuing gains. My crystal ball is a little cloudy, so I focus on data. The market is doing well overall, up over 14% for the year. I have concerns that a large portion of that growth is from one stock, and that we are due for a pull-back. Even in a bull, or rising, market, small drops are normal, and long-term investors should take them in stride.
This year’s financial aid system for colleges was anything but normal. With the delayed rollout of the new FAFSA, many students are still waiting for financial aid decisions. One new change that can help applies to family members besides students or parents.
Previously, any distributions from a college savings 529 account were included as student income, regardless of who owned the account. If Grandma Susie had opened a 529 for each of her grandchildren, any distributions to pay for school were considered income to the student, and reduced financial aid they would have otherwise received by up to 50% of the distribution.
Now, student’s income is based solely on their federal tax return, so 529 distributions are not included in the calculations.
Contributions to a 529 account are considered gifts and are limited to $18,000 per year. With a 529, you can front-load up to five years of gifts, for a total of $90,000. Beyond that, tuition payments made directly to a school do not count as gifts at all.
What happens if all the money in a 529 isn’t needed, or the student doesn’t go on to college or vocational school? You can still transfer the money to another child, or take it out, subject to taxes and a 10% penalty on the gains. And the new rules allow you to transfer up to $35,000 in leftover funds to the student’s Roth IRA tax-free.
A final potential benefit for Maryland 529 account owners is the state matching program. If you earn under $112,500 as an individual or $175,000 for married couple filing jointly, you can receive a match on your contributions, up to $500. Given the new financial aid changes, retired grandparents may want to open accounts to receive the match for each grandchild.
Your action item is to review your checking account and credit card statements for unrecognized charges.
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CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
[1] CNBC, The stock market is in its longest stretch without a 2% sell-off, Brian Evans, 6/21/24