Investment Planning: Buy The Haystack
Beating the market is rare. Learn why most active funds lag and why index investing (buying the haystack) can be the smarter choice.
Author: Matthew Williams CFP®, RICP®, CEXP®, CASL®, AEP® | Director of Financial Planning at Impact Advisors Group
Last month, we provided an overview of the key provisions in the just-signed One Big Beautiful Bill Act (OBBBA).
As we kick off the new school year, we believe this is a good time to address some of the important changes that were included in the OBBBA for 529 college savings plans—changes that could significantly affect how families plan and save for education.
First, let’s define the two main types of 529 plans.
1. While less popular, prepaid tuition plans allow you to purchase college credits from participating schools for future use. You buy these credits at today’s rates. When your child is ready to attend college, the plan allows you to use the credits, even if tuition has risen.
2. What is a 529 college savings plan? The 529 plan, which we will focus on, is another vehicle that is used to save for education. While there is no federal deduction when you contribute to a 529 plan, capital gains, dividends, and interest are not taxed as long as they remain within the 529 account. Most states with income taxes allow either a deduction from income or a state tax credit for contributions into a 529 plan.
The funds in a 529 savings plan can be invested in stocks, bonds, mutual funds, exchange-traded funds (ETFs), money markets, and more. If you use the funds for qualified education expenses, you won’t pay taxes on withdrawals.
Currently, college savings accounts hold about $500 billion, according to the College Savings Plan Network. Despite the large amount of funds stashed in these accounts, not many people utilize them.
Just over two-thirds of parents save money for their children’s education in traditional checking or savings accounts, according to a Vanguard survey of 1,005 parents who have children that are 17 and under living at home.
Just 10% of parents are leveraging the value of 529 savings plans for educational expenses their children are likely to encounter, the survey found. Among millennial parents, the number drops to 8%, while just 6% of Gen Z parents take advantage of 529 college savings plans.
1. Previously, parents could withdraw up to $10,000 per year to cover tuition.
With the OBBBA, K-12 qualified expenses (withdrawals that are not taxed) have been expanded to include:
Tuition includes public, private, or religious elementary or secondary schools.
Starting January 1, 2026, the total withdrawal amount for all K-12 expenses will rise to $20,000 per year from $10,000.
2. Under previous law, credential programs were eligible for tax-free 529 withdrawals only when offered through community colleges or other eligible institutions.
The new law allows you to use 529 funds for a wider range of job training and credentialing programs as long as the student is enrolled in a recognized program.
Credential programs must include one of the following:
Qualified withdrawals now include:
3. Previously set to expire on December 31, 2025, the provision allowing 529 plan holders to roll over funds into an ABLE (Achieving a Better Life Experience) Account for the beneficiary or a qualifying family member has now been extended indefinitely.
Although not the focus of this month’s newsletter, it’s worth noting that ABLE Accounts are a savings option that is available to individuals with disabilities who meet eligibility requirements. These accounts fall under Section 529A of the Internal Revenue Code and offer tax-advantaged benefits.
These rollovers are tax-free, offering families greater flexibility in repurposing education savings for qualified disability-related expenses.
The ABLE Act allows a person whose disability began before age 26 (expanding to 46 effective January 1, 2026) to save money in the ABLE account without affecting most federally funded benefits based on need.
Unlike IRAs, for instance, contribution limits are not as clear-cut. For starters, there is no annual federal contribution limit for 529 plans. You can contribute any amount per year, but contributions are considered gifts for tax purposes.
There are, however, lifetime limits imposed by states. These are very high and usually do not impact contributions. Georgia is the lowest: $235,000. Many states have an aggregate limit in excess of $500,000.
In 2025, the annual gift tax exclusion is $19,000 per beneficiary. A married couple can contribute up to $38,000 without triggering gift tax reporting.
There’s also a special “superfunding” rule that allows you to contribute five years’ worth at once—up to $95,000 in 2025—without gift tax implications, as long as no additional contributions are made for that beneficiary during the five-year period.
In summary, whether you’re saving for college, vocational training, or certain credentialing programs, a 529 plan offers flexible, tax-advantaged options to help you reach your goals.
With recent updates expanding how these funds can be used, now is a great time to review your strategy.
If you have questions or want help tailoring a plan to your family’s needs, don’t hesitate to reach out. We’re here to help.
As always, please feel free to check in with your tax advisor regarding any specific tax questions.
Sources:
Beating the market is rare. Learn why most active funds lag and why index investing (buying the haystack) can be the smarter choice.
Customer concentration occurs when a large part of a company’s revenue comes from a single or small group of customers/clients.
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4 and encompasses hundreds of provisions.
Although the year to date returns have been incredibly concentrated, so have the earnings in the market.