Michael Bufalini, Financial Advisor

Since I specialize in working with millennials, I frequently talk to clients about how they can save for their children’s college education. According to the J.P. Morgan College Planning Essentials Guide, the total cost of a four-year college education for a child born this year is projected to be a whopping $268,138 at a public in-state college, $474,868 at a public out-of-state college, and $631,913 at a private college.

One way parents can save for those future costs is by contributing to a 529 college savings plan. The benefits include:

-Tax-deferred growth

-Tax-free withdrawals if the money is used for qualified expenses, such as tuition, room and board, books, and laptops

-Special gift and estate tax benefits not available in other accounts

-Depending on the account owner’s state of residence, contributions may be tax-deductible at the state level.

-Minimal impact on financial aid eligibility

-The account owner maintains control of the account even after the beneficiary reaches adulthood.

But what if the beneficiary doesn’t go to college? The account owner has some options:

-Let the money continue to grow on a tax-deferred basis. Earnings on non-qualified withdrawals will be subject to income tax plus a 10% federal tax penalty.

-Change the beneficiary to another family member.

-Rollover savings from the 529 plan into a Roth IRA without incurring any federal income tax or penalty. The Roth IRA must belong to the same beneficiary, and the lifetime rollover limit is $35,000. To be eligible, the 529 account must have been open for at least 15 years and the rollover amount must have been in the 529 account for 5 years.

If you’re interested in learning more about 529 college savings plans, please feel free to email me at [email protected] or call me at 917-540-3871.

#529

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and 529 Product Program Description, which can be obtained from a financial professional and should be read carefully before investing. Depending on your state of residence, there may be an in-state plan that offers tax and other benefits which may include financial aid, scholarship funds, and protection from creditors. Before investing in any state's 529 plan, investors should consult a tax professional. If withdrawals from 529 plans are used for purposes other than qualified education, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax.

For the 2026 tax year, you cannot contribute directly to a Roth IRA if your gross income exceeds $168k as a single tax filer OR $252k as a married couple that files jointly.

Thankfully, there’s a workaround called a backdoor Roth IRA. Here’s an example of how it works:

John and Jane Doe are 35 years old, work full-time, and expect to make $400k in 2026. Their only retirement accounts are their respective 401k plans, which they are both maxing out with pre-tax contributions. They decide they also want to contribute to Roth IRAs to further save for retirement and diversify from a tax standpoint.

They each open their own traditional IRA and contribute the 2026 max of $7,500 to each. Those contributions are non-deductible since John and Jane make over $149k and are eligible to participate in the 401k plans offered by their respective employers.

Right after they make those non-deductible traditional IRA contributions, they convert both traditional IRAs to Roth IRAs. The conversions are not taxable since the traditional IRA contributions were non-deductible. The Roth IRAs will then grow tax-free and distributions that John and Jane take after age 59.5 will be tax-free.

There are some caveats:

1. It typically makes sense to put the traditional IRA contributions in a cash vehicle such as a money market fund and do the conversion promptly, as any earnings will be taxed as ordinary income when the conversion happens.

2. If you have existing pre-tax money in any traditional IRAs, a portion of your conversion will be taxable. The more pre-tax IRA money you have, the greater the taxable portion of the conversion will be. This is called the pro-rata rule.

3. If you read this entire thing on a Friday afternoon, I applaud you.

Clients sometimes ask me about how they compare financially to their peers. The honest answer is that it doesn't matter. What does matter is whether their finances allow them and their loved ones to live their own version of a happy, fulfilling life. Comparison is the thief of joy.

The IRS recently announced the federal income tax brackets for 2026, as well as changes to the long-term capital gains brackets, the estate tax exemption, child tax credit eligibility, and more.

IRS announces new federal income tax brackets for 2026 The IRS has announced higher federal income tax brackets and standard deductions for 2026. Here's what taxpayers need to know.

Good luck to all school personnel this academic year! You are owed a debt of gratitude for your role in shaping the future. 🍎✏️

Since tariffs continue to dominate headlines, I'm going to clarify some things:

1. A tariff is a tax imposed by one country on goods imported from another country.

2. The foreign country to which the tariff applies does not pay the tariff. For example, when a good is imported into the US from China, the Chinese government does not then send a check to the US government. Instead, the company that imports the good is responsible for paying the tariff when the good goes through US Customs.

3. The importing company will commonly try to offset the tariff by increasing the prices charged to the end customers.

Thank you for attending my Ted Talk.

Congratulations to all students and school personnel who just completed the academic year. I hope you have a great summer! 🎓☀️

Kathryn and I really enjoyed our first visit to Chicago. The highlight for me was catching a game at Wrigley (even though I’m a diehard Yankees fan). What an awesome city.

'Worrying doesn't help': How to tame your tariff-related stress, from a behavioral financial expert The tariff news can feel all-consuming for investors and consumers, but it doesn't have to.

Possible uses of a tax refund include:

-paying down high-interest debt

-bolstering your emergency fund, which should consist of 3-6 months worth of expenses

-building your savings for a major purchase (i.e. down payment on a house)

-investing within a retirement account and/or non-qualified account

-gifting money to a loved one or charity

-treating yourself

If you received or are expecting to receive a tax refund and you are not sure how to best use it, I'm happy to have a conversation.

[email protected]
917-540-3871

Friendly reminder: traditional IRA and Roth IRA contributions for 2024 can be made until the tax-filing deadline, which is April 15th, 2025. The annual IRA contribution limit is $7,000. People who are age 50 or older can make a catch-up contribution of $1,000 on top of the $7,000 limit.