529 College Plans, Tax Forms, and More

Watercolor of Key West, Florida shack by Cass Grange

March 2025

Hello Megan,

One of the most gratifying things we can do with our money is invest in future generations. A great way to do this is through 529 College Savings accounts. This can be a way to leverage the benefits of income-tax-free growth, while making sure that education remains a priority for future generations. Anyone can open a 529, regardless of income.

Contributions to 529 accounts are also a way for grandparents to keep control of the money AND move the money out of their estates. You can transfer significant amounts to others and get the assets out of your estate, up to $19,000 each year ($38,000 for married couples) per beneficiary each year without gift-tax consequences. There is even a special rule for 529 accounts that lets you transfer up to five years of gifts ($95,000 for an individual or $190,000 for a married couple) and, for the tax purposes, spread the gift over the next five years.

529 accounts are flexible

If your oldest grandchild receives a full scholarship to college, congratulations! You can change the beneficiary of the 529 at any time to any of your other grandchildren, or your grandchild can use the money for graduate school or for their own child. These accounts can pay for any US college, trade school or community college. They can pay for tuition, room and board, computers, and books. The funds cannot be used for travel or cars.

Take advantage of tax breaks

The biggest tax benefit of 529 plans goes to the student. Earnings on 529 investments are free from federal and state taxes if they are used for qualified educational expenses. There are no age limits for the recipients and the money can be held in plans indefinitely (if the plan allows this). If your circumstances change and you need the money for other purposes, you can take it out of the 529 account. Keep in mind you will have to pay income taxes on the growth. You'd also pay a 10% penalty on the earnings but not the contributions.

If you'd like to learn more about this, please reach out to us!

Sincerely,

Cass, Bleckley and Megan

Watercolor Wins!

Megan Poore celebrated the retirement of long-time client and friend, Barry. He recently went on a trip to Africa that has been on his bucket list for years. Congratulations Barry!

Form 5498 Will Not be issued by Fidelity Investments until May 2025

Here Is What You Need to Know: Starting this year, Fidelity Investments will not issue the Form 5498 until May. This is because it includes contributions to IRAs/Roth IRAs, and the deadline for contributions is April 15th of the following year. In the past Fidelity issued Form 5498 in January and then had to reissue many of them after owners made contributions early the next year.

What is Form 5498? Form 5498 is not needed to file your tax return. You can think of this document as an FYI for your own IRA record keeping. Your financial institution, Fidelity Investments, will automatically share Form 5498 with the IRS.

Who receives Form 5498? Account holders who contributed to a traditional IRA, Roth IRA, SEP IRA, and/or SIMPLE IRA in a given year should receive Form 5498. If you didn't make any IRA contributions in a given tax year, you will not receive Form 5498.

If you or your tax preparer have any questions about this, we are happy to help.

See more details at: Fidelity Investments

Tax Planning - Please send us your 2024 tax returns

The Watercolor Financial team made an investment in technology and training over the past three years so we can help you recognize tax planning opportunities. Our firm offers annual tax planning as part of our comprehensive financial planning service. Roth conversions, charitable giving and retirement plan contributions are just some of the opportunities that are easy to overlook.

Once you file your taxes, please securely upload your tax return in PDF format here

Q1 2025: Quarterly Market Guide

Please review this quarter's market guide by clicking here. We encourage all of our clients to review the straight-forward, easy-to understand guide written by Rafael Villagran, CIO of Genesia Investments and part of our investment team at Watercolor Financial.

Access your reports - Visit our web page for links to Fidelity (for access to statements and tax documents) and to the Orion portal (for access to performance reports and billing statements): Watercolor Financial website.

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