Savings Plans Methodology

Primary sources

529 qualified tuition plans are governed by IRC §529, enacted in 1996 and substantially amended by the Tax Cuts and Jobs Act (2017) and SECURE 2.0 (2022). IRS Publication 970 (Tax Benefits for Education) is the practitioner reference for 529 distribution rules, qualified expenses, and state deduction treatment.

State tax deduction availability and limits are sourced from each state's department of revenue publications. We maintain a 50-state table updated annually — state rules change more frequently than federal rules.

Growth projection formula

529 growth is modeled as compound interest: FV = PV × (1 + r)^n + PMT × ((1 + r)^n - 1) / r, where PV is initial balance, PMT is monthly contribution, r is monthly return, and n is months to matriculation. Our default return assumption is 5.5% annualized (a conservative long-term equity-blend assumption — state 529 age-based portfolios vary).

We model the tax drag comparison: 529 (no annual tax drag on growth) vs. taxable account (annual dividend/capital gain tax at 15% federal LTCG rate applied to 2% of portfolio annually, compounding the drag over the savings horizon).

SECURE 2.0 Roth rollover

SECURE 2.0 (enacted December 2022) added IRC §529(c)(3)(E), allowing unused 529 funds to be rolled over to a Roth IRA for the beneficiary, subject to: 15-year account history, annual rollover limit = Roth IRA annual contribution limit ($7,000 for 2024), lifetime limit $35,000, and income limits do NOT apply to the Roth rollover (uniquely). We model the rollover as a tax-free liquidity escape valve for overfunded 529s.

Limitations

Investment returns are projections, not guarantees. State tax deduction benefits vary — some states offer a deduction only for in-state plan contributions. Gift tax annual exclusion ($18,000 per donee in 2024) and 5-year superfunding ($90,000 lump sum) are modeled as optional inputs. K-12 use of 529 funds is capped at $10,000/year and not deductible in all states.

Update protocol

This category is reviewed quarterly. Immediate updates are triggered by changes to the primary source documents listed in the citations above — rate table revisions, new agency guidance, or regulatory amendments.

Error reports go to info@bedrockatools.com. Corrections are published on our corrections page.