Launching a start-up involves many decisions. Among the most important is choosing the right business structure for federal tax purposes. Last year’s One Big Beautiful Bill Act (OBBBA) made permanent and modified several provisions of the Tax Cuts and Jobs Act (TCJA) of 2017. Some of these changes should be considered when making the call. If you’re pondering the right structure for your next venture, here are some of the most critical tax-related considerations.

Corporation vs. Pass-Through

For tax purposes, you can generally follow one of two broad paths:

1. Establish a C corporation. It pays taxes at the entity level, and shareholders may face additional tax when they receive dividends, compensation or other taxable distributions, or sell their shares. These two levels of tax obligation are commonly referred to as “double taxation.”

2. Form some type of “pass-through” entity. Here, taxable income, losses, deductions and credits pass through from the business to each owner’s individual tax return.

When it comes to pass-through entities, options include partnerships, S corporations and limited liability companies (LLCs) treated as partnerships for tax purposes. You can also choose to run your business as a sole proprietorship or single-member LLC. Technically, these don’t count as taxable entities separate from their individual owners. But for this article’s purposes, we’ll include them with pass-through entities.

Major Factors

In the current federal income tax environment, some of the major factors to consider are:

The flat corporate tax rate. The TCJA permanently established a flat 21% federal corporate income tax rate, which is significantly lower than the top individual rate (37%). This provides significant tax benefits to some C corporations, helping to mitigate the impact of double taxation on shareholders.

Tax treatment of qualified small business (QSB) corporations. QSB corporations are a special type of C corporation. At the entity level, QSB corporations are generally treated as regular C corporations for legal and federal income tax purposes. So, most of the standard advantages and disadvantages of C corporation status apply equally to QSB corporations, including the 21% flat federal corporate income tax rate.

However, QSB shareholders can potentially enjoy a significant tax advantage: A special gain exclusion rule may allow them to avoid the federal income tax hit on up to 100% of the gain from selling QSB stock. To be eligible for the gain exclusion, several requirements must be met:

• You must acquire the shares upon original issuance by the corporation or by gift or inheritance.
• The corporation must be a QSB corporation on the date the stock is issued and for substantially all the time you own the shares. Among other things, this means it must not have assets that exceed $75 million ($50 million if the stock was issued on or before July 4, 2025). The $75 million limit will be indexed for inflation after 2026.
• The corporation must actively conduct a qualified business. Service businesses and certain others don’t qualify. (Your tax advisor can provide a complete list of nonqualified businesses.)

Timing is also critical. To take advantage of the 100% gain exclusion for sales of QSB stock, you must have acquired the shares after September 27, 2010, and held them for at least five years. In addition, for qualifying stock acquired after July 4, 2025, the OBBBA allows a:

• 50% gain exclusion for QSB stock held for at least three years,
• 75% gain exclusion for QSB stock held for at least four years, and
• 100% gain exclusion for QSB stock held for at least five years.

The OBBBA also increased the per-issuer dollar limitation on eligible gain from $10 million to $15 million for qualifying stock. (Other limitations may apply.)

Individual tax rates. The OBBBA made the relatively lower individual federal income tax rates established by the TCJA permanent. They are 10%, 12%, 22%, 24%, 32%, 35% and 37%, with annual inflation adjustments to the rate bracket thresholds. If you choose to structure your start-up as a pass-through entity, one of those rates will help determine the tax impact.

Section 199A qualified business income (QBI) deduction. The OBBBA made permanent the QBI deduction for eligible owners of pass-through entities. The deduction generally equals 20% of QBI, not to exceed 20% of taxable income.

QBI is typically the net amount of qualified items of income, gain, deduction and loss that are effectively connected with the conduct of a U.S. business. Excluded are certain investment items, reasonable compensation paid to an owner for services rendered to the business, and any guaranteed payments to a partner or LLC member treated as a partner for services rendered to the business. The deduction is subject to additional limits at higher income levels.

Conventional Wisdom: Then and Now

Before the TCJA, the conventional wisdom was that small or midsize business start-ups should usually be formed as pass-through entities to avoid the double taxation associated with C corporations. Although double taxation still exists in practice, its impact has been significantly reduced by the flat 21% corporate income tax rate. Also, double taxation may be further mitigated or deferred if your C corporation:

• Has taxable income that’s zeroed out (or nearly so) with deductible compensation and fringe benefits provided to shareholder-employees (see “C Corporation Strategy: Paying Out Profits as Compensation and Benefits” below), or
• Needs to retain all its profits (or nearly so) to finance growth.

So, does this mean pass-through entities have lost their luster and C corporations are now the way to go for most start-ups? Well, it’s not that simple.

4 Scenarios to Consider

Let’s look at four of the most common scenarios that entrepreneurs face when launching a start-up. For all of them, let’s assume the business owners are in the maximum 37% marginal federal income tax bracket. (Obviously, that won’t always be the case.) Our examples also generally disregard state and local taxes and assume that the taxpayers are subject to the specified federal surtaxes.

Scenario 1: You expect to incur multiyear tax losses. Many start-ups operate at a loss during their first few years as they invest in growth and establish their market presence.If your main concern is deducting expected ongoing tax losses on your individual return, you should probably operate your start-up as a pass-through entity so you can, indeed, deduct those losses. Just be sure to understand potential tax law limits, such as the passive loss rules and the excess business loss disallowance rule. (Your tax advisor can explain further.)

Scenario 2: Your business will hold assets that are likely to increase significantly in value. It’s generally not a good idea to hold substantial appreciable assets (such as real estate or certain intangibles) in a C corporation. The reason: If the assets are eventually sold for substantial gains, you may not be able to get the profits out of your corporation without incurring double taxation. In contrast, if you use a pass-through entity to hold appreciable assets, sale gains will typically be taxed only once for federal income tax purposes on your individual return.

Important: Assets held by a C corporation don’t even have to appreciate for double taxation to occur. Depreciation deductions lower the tax basis of depreciable property, so tax gains will result whenever the sale price exceeds the depreciated basis — and those gains may be double taxed if the corporation distributes the after-tax proceeds to shareholders.

Scenario 3: Your business will pay out all profits to owners. If you believe your start-up will generate a profit right away, you’ll have a tricky decision to make when it comes to entity choice. Let’s first assume that your profitable venture will be owned by one or more individuals (including you) and operated as a C corporation. The company will pay all its after-tax profits to shareholders as taxable qualified dividends that are subject to the 20% maximum federal rate. So, the maximum combined effective federal income tax rate on those profits, including the 3.8% net investment income tax (NIIT) on dividends received by shareholders, will be approximately 39.8% [21% + (79% × (20% + 3.8%))].

Although this double taxation, further inflated by the NIIT, is substantial, it’s still favorable compared to historical standards. Before the TCJA, the maximum combined effective federal income tax rate in this scenario would’ve been approximately 50.47% [35% + (65% × (20% + 3.8%))].

Now let’s say you operate the same profitable business as a pass-through entity that pays all its profits to the owners. For purposes of this simplified example, we’ll assume the income will be subject to the 37% top individual rate plus an additional 3.8% through the NIIT or applicable Medicare taxes. In that case, the maximum effective federal income tax rate will be 40.8% (37% + 3.8%). However, if you, as an owner, can claim the QBI deduction on your individual return at the full 20% rate, the maximum effective rate would fall to 33.4% [(80% × 37%) + 3.8%].

In this scenario, forming a pass-through entity may be preferable if meaningful QBI deductions are available. If not, the optimal result will depend on various factors including applicable employment taxes, the NIIT and state taxes.

Scenario 4: Your business will retain all profits to finance growth. Sometimes a start-up’s initial objective is to grow the business, not generate wealth for the owners. In this scenario, the 21% corporate income tax rate gives C corporations a potential advantage. Why? Assuming the retained profits increase the value of the corporation’s stock dollar-for-dollar, when the shares are eventually sold, shareholders will pay federal income tax at the maximum 20% rate for long-term capital gains. So, the maximum combined effective federal income tax rate on the venture’s profits, including the 3.8% NIIT on stock sale gains, will be approximately 39.8% [21% + (79% × (20% + 3.8%))].

Again, this result comes from double taxation plus the NIIT. But the 39.8% rate is still relatively low by historical standards. And remember that the shareholder-level tax on stock sale gains is deferred until the sale occurs. Plus, thanks to current first-year depreciation rules, eligible businesses can deduct 100% of the cost of many types of qualifying property the year they’re placed in service. (Note: This rate generally applies to qualifying property acquired after January 19, 2025.) So, a capital-intensive C corporation may have little or no current federal taxable income.

Now say you operate that same profitable business as a pass-through entity owned by one or more individual taxpayers (including you). Assuming the income will be subject to the 37% top individual rate plus an additional 3.8% through the NIIT or applicable Medicare taxes, the maximum effective federal income tax rate on income passed through to the owners will be 40.8% (37% + 3.8%). That’s a bit higher than the 39.8% rate that would apply to a C corporation. And unlike retained C corporation earnings, pass-through income is generally taxable to the owners currently, even if the business doesn’t distribute enough cash to cover their tax liabilities.

But here’s an important plot twist: If you, as an owner, can claim the full 20% QBI deduction, the maximum effective rate will be reduced to 33.4% [(80% × 37%) + 3.8%]. That’s significantly lower than the 39.8% rate with a C corporation.

In addition, eligible businesses can deduct 100% of the cost of many types of qualifying property the year they’re placed in service. So, a capital-intensive start-up operating as a pass-through entity may also have little to no current federal taxable income. However, reducing pass-through income with first-year depreciation could reduce allowable QBI deductions.

In this scenario, operating as a C corporation may be preferable — especially if your company is a QSB corporation. In such a case, you may be eligible for the 100% gain exclusion when you sell your stock after holding it for at least five years. If so, the maximum combined effective federal tax rate on the company’s profits could be as low as 21% (21% for the corporate-level tax and no tax at the shareholder level when you sell your shares).

However, if you expect to benefit from the full 20% QBI deduction, structuring your start-up as a pass-through entity might provide a better result. Just remember, federal income taxes will be due currently, whereas with a C corporation, shareholder taxes generally aren’t due until appreciated stock is sold.

More Than Taxes

Of course, you need to think about more than just taxes when choosing an entity. Liability protection, ownership requirements, administrative costs and your eventual exit strategy may also influence the decision.

That said, the initial choice can have significant and lasting tax consequences — and changing structures later may be costly or complicated. So be sure to work with your tax and legal advisors to evaluate your options and all the surrounding circumstances.

Divorce is a major life event that can have significant personal and financial consequences. In addition to addressing family and emotional concerns, you’ll need to determine whether your assets are divided equitably. When assessing the fairness of a divorce settlement, taxes are a critical consideration. In general, you can divide most assets between you and your soon-to-be ex-spouse without any federal income or gift tax consequences. (See “How the Tax-Free Transfer Rule Works” below.)

However, special rules apply to transfers of retirement account assets between divorcing spouses. A properly structured divorce agreement can help you avoid potential pitfalls related to these tax-advantaged accounts.

IRA Transfers

Federal income tax rules allow divorcing spouses to divvy up IRAs without adverse tax consequences. The following types of accounts are considered IRAs for this purpose:

• Traditional and Roth IRAs,
• Simplified Employee Pension (SEP) IRAs, and
• Savings Incentive Match Plans for Employees (SIMPLE) IRAs. 

Essentially, you can arrange for a tax-free transfer of all or part of your interest in an IRA to an IRA maintained in your ex-spouse’s name. The IRA custodian generally completes this transaction by transferring the assets directly or changing the name on the account. After the transfer, the recipient spouse generally is responsible for taxes on future taxable distributions.

However, there’s an important catch: The transfer must be made under a decree of divorce or separate maintenance or a qualifying written instrument incident to the decree.

If you voluntarily give your ex-spouse some IRA funds before it’s required under a divorce or separation instrument, it will be treated as a taxable distribution to you. That means you’ll owe the related taxes — even though you didn’t actually keep the money. Plus, if you’re under age 59½, you’ll generally owe a 10% penalty on the early distribution, unless an exception applies. For certain distributions from a SIMPLE IRA during the first two years of participation, the additional tax may be 25% rather than 10%.

Transfers from Qualified Retirement Plans   

Dividing benefits under employer-sponsored qualified retirement plans generally requires a qualified domestic relations order (QDRO). A QDRO is commonly used for the following retirement assets:

• Qualified retirement plans at work, such as 401(k) plans,
• Self-employed or small business qualified plans, such as Keogh or corporate profit-sharing plans, and
• Defined benefit pension plans.

Many employer-sponsored plans are prohibited from transferring funds or paying benefits to a former spouse without a valid QDRO on file. A QDRO establishes your ex-spouse’s legal right to receive a designated percentage of your retirement account balance or designated benefit payments from your plan. It ensures that your ex, and not you, will be responsible for the related income taxes when they receive taxable distributions from the plan.

A QDRO also allows your ex to roll over an eligible rollover distribution received under the QDRO tax-free into an IRA (assuming the plan permits such a withdrawal). That way, your ex can take over management of the money while postponing income taxes until taxable withdrawals are taken from the rollover IRA.

Non-QDRO Transfers

Without a valid QDRO, money that’s transferred from your qualified retirement plan account to your ex-spouse is generally treated as a taxable distribution to you. That means your ex will get the money tax-free, and you’ll owe all the taxes and, if you’re under age 59½, the 10% penalty (unless an exception applies).  

Additionally, the extra income from a large taxable distribution could potentially push you into a higher tax bracket and may increase the likelihood that your other investment income will be subject to the 3.8% net investment income tax (NIIT). It may also reduce tax breaks subject to income limits.

Tax-Smart Divorce Settlements

If both spouses have their own retirement savings, it might be easier for each spouse to retain their own account and split up other assets to achieve an equitable settlement. If retirement accounts must be divided, it’s essential to address retirement account transfers properly in your divorce agreement and consult your tax advisor before finalizing your settlement.

In general, avoid taking marital assets at face value. Instead, consider their after-tax values. For example, distributions from traditional retirement accounts generally are taxable. Conversely, qualified Roth distributions generally are tax-free because Roth contributions are made with after-tax dollars.

Seek Professional Guidance

Settling the financial aspects of a divorce can be complicated, especially if the parties have been married for many years and have accumulated substantial net worth. Your tax and financial advisors can help you evaluate various settlement options — including asset allocations and support payments — that minimize potential taxes and meet other personal objectives.

You may think of a will or living trust as the primary place to dictate who’ll receive your assets after your death. But for many people, a large portion of their assets — perhaps even most of them — will be distributed according to beneficiary designations. These generally apply to retirement accounts, life insurance policies and sometimes other financial assets as well.

Because these designations typically override instructions in a will or living trust, failing to review them regularly can lead to unintended consequences — such as passing assets to a former spouse or excluding a newly added family member. That’s why it’s especially critical to check on them after major life changes, including marriage, the birth of a child, divorce or the death of a loved one.

Review and Update Key Forms

Double-check whether your beneficiary designations are accurate in the required documentation for assets such as:

• IRAs,
• Employer-sponsored retirement plan and other benefit accounts,
• Life insurance policies,
• Annuities, and
• Section 529 plan accounts.

If you have any of these types of assets and haven’t submitted beneficiary designation forms for them, do so immediately. If ones you completed years earlier are now out of date, change them to reflect your current situation before it’s too late.

You may also be able to name beneficiaries for bank accounts and brokerage firm accounts. To do so, you usually need to complete and submit a transfer-on-death (TOD) or payable-on-death (POD) form to the bank or brokerage firm. To change beneficiaries, you’d complete and submit an updated TOD or POD form. Naming beneficiaries for these types of accounts can be helpful because it allows assets to be transferred quickly and easily without going through probate.

Important: As mentioned above, don’t rely on your will or living trust to override outdated beneficiary designations. Generally, whoever is named on the most recent beneficiary form will receive the assets after your death — regardless of what other documents might say.

Check Into Spousal Consent

Be aware that if you’re married, your spouse’s consent may be required to make certain beneficiary changes. This can depend on the type of asset, the terms of the retirement plan or contract, and applicable federal or state law — including the relevant rules in community property states. Most assets accumulated during marriage may be treated as marital or community property, depending on where you live and how the asset is titled.

If you set up assets with you and your spouse named as joint tenants with right of survivorship, your spouse will automatically take over sole ownership if you die. This is a common ownership arrangement for real property and has the advantage of avoiding probate. But retitling assets can have tax, creditor, control and estate planning consequences. So, discuss ownership options with your tax, financial and legal advisors before proceeding.

Don’t Forget To Name Contingent Beneficiaries

Many beneficiary designation forms allow you to name contingent beneficiaries — sometimes called secondary or successor beneficiaries — who receive the asset if the primary beneficiary dies before you. For instance, you might name a child, grandchild, trust or charity as a contingent beneficiary, depending on your family circumstances, tax considerations and estate planning goals.

When designating either primary or contingent beneficiaries, bear in mind that your choice can have income tax consequences. For example, who you name as beneficiary of a retirement account may affect whether the balance must be distributed within 10 years or distributions can be spread out over the beneficiary’s lifetime, allowing continued tax deferral. Also, if you don’t designate a beneficiary for an asset that requires one, or you name your estate as the beneficiary, the asset could have to go through probate.

Simple Yet Important

Reviewing and updating your beneficiary designations is among the simplest yet most important steps you can take to protect your loved ones and help ensure your assets are distributed as you intended. Set aside the time to review your beneficiary designations at least annually and after major life changes. If you have questions or would like a helping hand, contact your estate planning advisors.

Once upon a time, employees could claim home office expenses as a miscellaneous itemized deduction, subject to a 2%-of-adjusted-gross-income floor, if the arrangement was for their employer’s convenience. But such deductions were suspended for 2018 through 2025, and last year’s One Big Beautiful Bill Act made that suspension permanent.

So, today employees get no personal tax benefit if they work from home. However, self-employed individuals may still be eligible to deduct home office expenses from their self-employment income. Here’s how.

Qualifying for the Deduction

To qualify for a home office deduction, in addition to being self-employed, you generally must use at least part of your home regularly and exclusively as either:

• Your principal place of business, or
• A place to meet or deal with customers, clients or patients in the normal course of business.

In addition, you may be able to claim deductions for maintaining a separate structure — such as a barn or shed — where you store products or tools used solely for business purposes.

Notably, “regular and exclusive” use means you must consistently use a specific, identifiable area in your home for business and not for any other activities. You don’t have to cordon off the area used for business purposes, but doing so may be helpful when a room is also used personally for other reasons.

When evaluating whether your home office is your principal place of business, the IRS could challenge deductions if you work at multiple locations. However, your home office will qualify as your principal place of business if it’s used regularly and exclusively for administrative or management activities, and you don’t have any other fixed location for conducting these activities. This scenario may affect taxpayers in a wide range of professions and industries, such as physicians, interior designers and plumbers.

Looking at Direct vs. Indirect Expenses

If you qualify for the home office deduction, you potentially can write off the full amount of your direct expenses and a proportionate amount of your indirect expenses based on the percentage of business use of your home. (Note: The deduction generally can’t exceed your net income from self-employment.) Indirect expenses include:

• Mortgage interest,
•  Property taxes,
• Utilities (such as electric, gas and water),
• Insurance,
• Exterior repairs and maintenance,
• Home security system fees, and
• Depreciation for homeowners based on IRS tables or a proportionate share of rent for renters.

Important: If you itemize deductions, your mortgage interest and property taxes may already be deductible (subject to certain limits). If you claim a portion of these expenses as indirect home office expenses, the remainder for each is deductible as an itemized deduction. But you can’t deduct the same amount twice, first as a personal itemized deduction and again as a home office expense.

Doing the Math

Typically, the percentage of business use is determined by square footage. For instance, if you have a 3,000 square-foot home and use a room with 300 square feet as your home office, the applicable percentage is 10% [300 ÷ 3,000]. Alternatively, you may use any other reasonable method for determining this percentage, such as a percentage based on the number of rooms used for business compared with the total number of rooms — as long as the rooms are approximately equal in size.

Now let’s say your home office is 150 square feet and the percentage of your home is 5%. You spend $5,000 to paint and make some minor repairs in your home office (direct expenses), and you incur another $10,000 in indirect expenses for the entire home. In this case, you can generally deduct $5,500 [$5,000 + (5% of $10,000)].

Keeping It Simple

Tracking direct and indirect expenses can be time-consuming and tedious. Some taxpayers prefer to take advantage of a simplified method of deducting home office expenses. Instead of deducting actual expenses, you can claim a deduction equal to $5 per square foot for the area used as a home office, up to a maximum of 300 square feet or $1,500 for the year.

Although the simplified method takes less time than tracking your actual expenses, it generally results in a significantly lower deduction. Going back to the previous example of a 150-square-foot home office and a home office percentage of 5%, the simplified method would give you a home office deduction of only $750. That’s much less than the $5,500 home office deduction you’d have received by tracking actual expenses.

Watching Out for the Recapture Provision

If you eventually sell your home, you may qualify for a tax exclusion of up to $250,000 of gain for single filers ($500,000 for married couples filing jointly). But there’s a catch if you’ve claimed the home office deduction: You must recapture the depreciation attributable to your home office for the period after May 6, 1997. The recaptured amount could be taxable at a rate as high as 25%, which is greater than the usual maximum long-term capital gains rate of 20%. (The 3.8% net investment income tax could also apply, depending on various factors.)

Also, the little-known recapture provision technically applies to “allowed” or “allowable” depreciation. So it’s imposed on a home sale even if you haven’t claimed depreciation in the past. However, there’s no recapture if you used the simplified method for claiming home office expenses. This is another factor to consider when deciding whether to deduct your actual home office expenses or to use the simplified method.

Determining Eligibility

Whether you’re a self-employed business owner, professional or tradesperson — or you have self-employment income from a side gig — if you use part of your home for business purposes, you might qualify for the home office deduction. Your tax advisor can help you determine whether you’re eligible and, if so, which deduction method to use.

If you’re the parent of a college-aged child, you already know how pricey higher education has become. According to EducationData.org’s Education Data Initiative (EDI), the average annual cost of college in the United States in 2026 is $38,270, which means college costs have more than doubled in the 21st century.

Of course, the actual cost of earning a bachelor’s degree depends on many factors. These include whether a student attends a public or private institution and whether a public school is in- or out-of-state. Also, will a student live in campus housing, in an off-campus residence or at home? Do those cost calculations take into account books, supplies, technology needs and living expenses? And critically, how much financial aid will the student receive? Let’s take a closer look at the real cost of college — and how it’s possible to reduce it significantly.

Role of Financial Aid

Financial aid can substantially reduce college costs — if you apply for it. Regardless of your family’s income level, you should fill out the Free Application for Federal Student Aid (FAFSA) form. Even families with high incomes may qualify for some financial aid. Yet the National College Attainment Network found that only slightly over half of high school seniors completed the FAFSA in 2025. Why is the rate so low? According to Bankrate, a financial information provider, “A mix of misconceptions, skepticism, lack of awareness and a botched 2024 season may be keeping students from applying.”

Different schools may use different methodologies to calculate specific financial aid awards. In addition to filling out the FAFSA, your child’s college may ask you to submit other forms with additional financial information.

Some private colleges use the CSS Profile or other institutional aid applications to gather more detailed financial information than the FAFSA requires. Depending on the school, institutional aid calculations may consider factors such as home equity, medical expenses, private school tuition, noncustodial parent finances or other family circumstances.

Some schools also use shared institutional aid principles or school-specific formulas. Because methodologies vary, families should review each college’s financial-aid requirements and net price calculator.

Regardless of the methodology a college uses, financial aid offices sometimes have flexibility when awarding institutional aid. When awarding federal grants, loans and most state aid, colleges generally use the federal formula. But when awarding their own money, schools may make different calculations.

Important: Some parents mistakenly believe the FAFSA requires them to report their retirement savings. You don’t. For financial aid purposes, balances in qualified retirement accounts generally aren’t reported on the FAFSA, though withdrawals may affect income.

Lowdown on Loans

In the 2024-25 school year, parents and students borrowed $102.6 billion in federal and nonfederal loans to pay for postsecondary education, according to the College Board. Your student may qualify for several types of federal and private loan programs. Be sure to review the terms and conditions of each loan option carefully.

Parents who complete the FAFSA may qualify for federal Parent PLUS loans. If you’re considering one of these, however, confirm current annual and aggregate borrowing limits, because federal rules may change by award year. Or you may be eligible to take out private parent loans through a bank or to cosign with your child on private student loans. But beware: You don’t want to compromise your own financial security (including your retirement savings plans) to pay for your child’s college costs. As the saying goes, you can borrow money for college, but no one will loan you money for retirement.

Never borrow more than what’s needed for legitimate college expenses. Some programs make it easy to borrow extra spending money that students can use for, say, travel or entertainment expenses, leading to a hefty loan balance at graduation.

Free Money?

There are billions of dollars of scholarships available to students who make the effort to apply. Scholarships are generally available regardless of your income level. Even if you don’t qualify for need-based aid, you may qualify for an educational merit or sports scholarship, or one of the thousands of niche scholarships.

However, finding scholarship opportunities takes research. Your student’s high school guidance counselor can help. In addition to private merit-based scholarships, there are state-funded scholarships to explore. These are designed to keep the top students at in-state colleges and universities. And though you should search online for possible scholarships, know that some information may be inaccurate, misleading or even fraudulent. For example, scam websites might charge a fee for the “inside scoop” on scholarships, or they might ask for personal information or credit card numbers that they can use to steal your identity. If you encounter such requests, go elsewhere.

Most scholarships have firm application deadlines, with an application process that requires recommendation letters, transcripts, essays and other supporting documentation. To improve the chances of qualifying, you may need to complete the FAFSA early. Many merit-based scholarships are offered through the institutions your child applies to, and they may require the FAFSA and additional supporting items. In some cases, funding is limited to a fixed number of qualified applicants. In other words: First come, first served.

Important: Keep excellent records of your scholarship and loan applications, and read all the fine print before signing and applying.

Room, Board and Other Expenses

Living at home during college or attending a local community college for the first two years is a great way to save money. But if your student wants to go away to college, room and board will likely be a big expense. EDI estimates that the average cost of college room and board for 2026 is $12,917. However, living expenses can vary substantially depending on specific factors.

A little frugality can go a long way. For example, your student may be able to choose a more cost-effective meal plan while living in the residence halls, drink home-brewed coffee or find a few friends to share an off-campus apartment. A part-time job can be a great way for students to earn spending money, contribute to education costs and build their resumes.

4-Year Target

When selecting a college, consider the school’s graduation rates. One of the best ways to control the cost of college is to graduate on time. Yet four-year completion is far from guaranteed. EDI reports that only about 42% of students seeking a bachelor’s degree graduate within four years.

Planning is key to on-time graduation. Students who drop or fail classes, frequently switch majors or enroll in a less-than-full course load each semester are likely to take longer to complete their coursework. So before starting college, your student should take advantage of any advanced placement classes or dual enrollment options. Once in college, students should meet with their academic advisors every semester to ensure they’re meeting the requirements necessary to graduate on time.

Important: Students should know what classes their school will offer in their final semesters. They may need a certain class for their major or to graduate, only to find it won’t be offered again until the fall after they’re scheduled to graduate.

A Long Process

The price you’ll ultimately pay for college probably won’t be the original sticker price. Smart planning can help you and your student measurably reduce the cost of tuition, room and board, and other higher-education expenses. That’s the good news.

The bad news is that worrying about college costs doesn’t usually end when you submit financial aid paperwork or receive word about an aid package. It’s a four-year — and often longer — process, during which your financial situation could change.

Your school’s financial situation may change, too. For example, the school may have offered scholarships or grants to students who chose another school, leaving extra aid available. For this reason, check in with your financial aid office in the summer to see whether it can offer additional financial assistance for the fall.

Ask for Help

It’s not unusual for parents to feel overwhelmed by the process of funding a child’s college education. Your financial advisor can help you strategize for one of the biggest and most rewarding financial commitments of your life, as well as look for ways to cut some of the costs involved.

Financially speaking, college athletics are a whole new ballgame these days. Student-athletes can now be paid for the use of their name, image and likeness (NIL) without jeopardizing their eligibility. Payments largely come from boosters — individuals supporting their alma mater or favorite school. And for top high school recruits and elite transfer portal prospects in certain sports, millions of dollars may be at stake. Let’s explore the tax impact for both groups.

What’s NIL?

In 2021, the National Collegiate Athletic Association (NCAA) adopted its interim NIL policy, allowing student-athletes to be paid without jeopardizing their NCAA eligibility. In addition, following the House v. NCAA settlement in 2025, participating schools were permitted to begin direct revenue-sharing payments to student-athletes, adding another layer of tax complexity beyond traditional third-party NIL deals.The definition of NIL income is expansive. According to the IRS, it applies to:

• Brand endorsements and marketing,
• Social media content,
• Sponsorships,
• Autograph fees,
• Guest and promotional appearances,
• Exhibitions,
• Endorsements, and
• Gifts, giveaways, merchandise, gift cards and other noncash items.

Whatever form it takes, whether cash or noncash compensation, NIL income is generally taxable at the federal level.

How Do Student-Athletes Pay Taxes?

Many student-athletes with third-party NIL deals are treated as independent contractors and may need to pay federal income tax and self-employment tax through quarterly estimated payments. For the 2026 tax year, the due dates are:

• April 15, 2026,
• June 15, 2026,
• September 15, 2026, and
• January 15, 2027.

If a due date falls on a weekend or holiday in a given year, it’s extended to the next business day.

Failure to make quarterly estimated payments may result in additional tax, interest and penalties. However, under two estimated tax safe harbors, student-athletes may be able to reduce or avoid underpayment penalties by paying:

1. At least 90% of the current year’s tax liability, which requires a calculated estimate of the individual’s current tax situation, or

2. At least 100% of the previous year’s tax liability, or 110% if adjusted gross income for the previous year exceeded $150,000 ($75,000 if married and filing separately).

There’s a third, less frequently used exception as well. When income is earned unevenly throughout the year, a student-athlete may use the annualized income installment method to reduce or avoid penalties.

The main takeaway is that self-employed student-athletes can’t wait until traditional tax time to settle up with the IRS. They must track their income throughout the year and pay estimated taxes. (Note: Some student-athletes may instead receive wages or other reportable payments from a school or other payer. If treated as employees, they’d have federal income taxes withheld and receive a Form W-2.)

There are state income taxes to deal with, too. Student-athletes must report their income to their state of residency and pay taxes, if applicable. They may also face multistate filing obligations if they perform NIL services, make promotional appearances or earn income in states other than their state of residency.

What About the Boosters?

Since 2021, financial support from boosters has poured in — from billionaires with premium season tickets to average, everyday fans who sit in the nosebleeds. Regardless of your financial standing, however, you may be hard-pressed to reap any tax benefits. Payments made directly to student-athletes aren’t deductible because they’re not considered qualified charitable contributions for tax purposes.

There may be a little more leeway for payments made to certain “collectives” used to disburse NIL income. These are third-party organizations formed by contributors of all stripes — including alumni, businesspeople and local supporters — to provide NIL income to student-athletes through social media promotions, personal appearances, autograph signings, endorsements and so forth. Although collectives operate independently, they’re often closely associated with a particular college and focused on supporting that school’s athletic programs.

To provide tax benefits to contributors, some collectives seek to attain tax-exempt status as qualified charitable organizations under Section 501(c)(3) of the tax code. Currently, the primary guiding authority for this strategy is IRS Advice Memorandum (AM) 2023-004, released on June 9, 2023. It concluded that many nonprofit NIL collectives don’t qualify for tax-exempt status because they provide more-than-incidental private benefits to student-athletes.

In other words, these organizations don’t always serve a public interest. If an organization benefits both public and private interests, AM 2023-004 requires the private benefit to be “both qualitatively and quantitatively incidental” to accomplishing the organization’s tax-exempt purpose. This sets a high bar for most collectives; however, some do manage to clear it.

Bottom line: Contributions to a collective (or affiliated organization) that qualifies for tax-exempt status may be deductible, subject to the usual charitable contribution rules. However, payments can’t be earmarked for a specific individual or exchanged for substantial benefits, such as athletic seating rights.

Any Questions?

It’s doubtful we’ve heard the last word on NIL income and its impact on federal and state taxes. Student-athletes and boosters alike should work closely with their tax advisors to understand all the rules and issues involved.

As cryptocurrency continues to gain mainstream adoption, scammers are finding new ways to target digital asset investors. The Internal Revenue Service (IRS) recently issued a warning about a sophisticated phishing campaign involving fraudulent letters that appear to come from the IRS and direct taxpayers to a fake “Digital Asset Compliance Portal.”

How the Scam Works

Victims receive what appears to be an official IRS letter stating that they must enroll in a “Digital Asset Compliance Portal” before a specified deadline. The letter includes a QR code that directs recipients to a fraudulent website designed to closely resemble IRS.gov.

Once on the fake website, individuals may be asked to provide sensitive information, including:

• Personal identifying information
• Cryptocurrency wallet details
• Exchange account usernames and passwords
• Other financial credentials

The IRS has made it clear that it does not operate a Digital Asset Compliance Portal, and any communication claiming otherwise is fraudulent.

What Should You Do?

If you receive a letter requesting that you scan a QR code or provide cryptocurrency account information:

• Do not scan the QR code.
• Do not provide any personal or financial information.
• Visit IRS.gov directly by typing the website into your browser rather than using links or QR codes from unsolicited correspondence.
• If you’re uncertain about the legitimacy of a notice, contact the IRS using official contact information available on IRS.gov.

If You Already Responded

If you believe you’ve interacted with the fraudulent website or shared sensitive information, take action immediately:

• Stop all communication with the scammer.
• Change passwords for any affected financial or cryptocurrency accounts.
• Notify your cryptocurrency exchange or financial institution as soon as possible.
• Save copies of emails, letters, screenshots, and any other communications.
• Report the incident to IRS Criminal Investigation through the agency’s online fraud reporting process.

A Reminder About QR Codes

While the IRS does use QR codes on certain legitimate notices, including some recent correspondence, taxpayers should exercise caution when receiving unexpected letters, emails, or text messages requesting immediate action. When in doubt, navigate directly to the IRS website rather than scanning a code from an unsolicited communication.

How BHCB Can Help

Tax-related scams continue to evolve, and cryptocurrency investors are increasingly becoming targets. If you receive suspicious tax-related correspondence or have questions about legitimate IRS communications involving digital assets, the professionals at Beers, Hamerman, Cohen & Burger, P.C. can help you determine whether a notice is authentic and guide you on the appropriate next steps.

Have questions about cryptocurrency taxation or IRS correspondence? Contact the BHCB team today. We’re here to help you protect both your financial information and your digital assets.

As families prepare for the new school year, Connecticut is offering two valuable sales tax exemptions that can help reduce back-to-school shopping costs. Whether you’re buying school clothes or stocking up on classroom essentials, understanding these exemptions can lead to meaningful savings.

Connecticut Sales Tax Free Week Returns August 16–22

Connecticut’s annual Sales Tax Free Week will take place Sunday, August 16, through Saturday, August 22, 2026. During this period, most clothing and footwear priced under $300 per item may be purchased free of Connecticut sales tax.

The exemption applies whether you shop:

• In Connecticut retail stores
• Online through qualifying retailers

It’s important to note that the $300 limit applies to each individual item—not the total purchase. An unlimited number of qualifying items may be purchased tax-free, provided each item costs less than $300.

Items That Do Not Qualify

Certain products remain taxable, including:

Specialized athletic or protective clothing not normally worn as everyday apparel

• Specialized athletic or protective clothing not normally worn as everyday apparel
• Jewelry
• Handbags
• Wallets
• Luggage
• Umbrellas
• Watches and similar accessories

If an item costs more than $300, the entire purchase price is taxable. However, if a retailer coupon reduces the final sales price below $300, the item may qualify for the exemption.

Permanent Sales Tax Exemption for Nonelectronic School Supplies

Beginning July 1, 2026, Connecticut also provides a year-round sales tax exemption for qualifying nonelectronic school supplies purchased for nonbusiness purposes.

Examples of qualifying supplies include:

• Notebooks
• Composition books
• Binders
• Pens and pencils
• Crayons and markers
• Glue sticks
• Scissors
• Rulers
• Paper
• Folders
• Lunch boxes
• Pencil boxes
• Chalk
• Highlighters and other traditional classroom supplies

Electronic versions of these items—or electronics such as laptops, tablets, or calculators—do not qualify under this exemption.

Business Purchases Are Different

The exemption for nonelectronic school supplies is intended only for personal, nonbusiness use.

If supplies are purchased by or for a business, they generally remain taxable. Retailers are instructed to presume purchases are for personal use unless the buyer indicates the items are being purchased for business purposes. Businesses that do not pay sales tax at the time of purchase may be required to self-report and remit use tax.

Planning Your Back-to-School Shopping

By combining Connecticut’s Sales Tax Free Week with the permanent exemption for qualifying nonelectronic school supplies, families can stretch their back-to-school budgets even further.
Before you shop:

• Purchase qualifying clothing and footwear between August 16 and August 22 to take advantage of Sales Tax Free Week.
• Keep individual clothing items below the $300 price limit whenever possible.
• Remember that qualifying nonelectronic school supplies are already exempt year-round when purchased for personal use.

With a little planning, Connecticut families can make the most of these tax-saving opportunities while preparing students for the upcoming school year.

Questions about Connecticut sales tax rules or other tax planning opportunities? Contact the professionals at Beers, Hamerman, Cohen & Burger, P.C. We’re here to help you navigate changing tax laws and make informed financial decisions.

Longer days and warmer weather often inspire people to get out, travel, tackle projects and make the most of the season. As you enjoy summer, consider briefly taking off your sunglasses to get a closer look at how some seasonal activities could help lower your tax bill. Here are six to examine.

1. Renting Out Your Home for Two Weeks or Less

Do you live in an area where an event — such as a golf tournament or music festival — is held? If so, consider departing during the event and renting your home to attendees. As long as you rent out your home for no more than two weeks total during the year, you don’t have to report the rental income.

That means it’s completely exempt from federal income tax. But you also can’t deduct rental-based expenses, such as advertising or cleaning.

You might use the extra income to splurge on your own vacation while the event takes place — or you can spend it on upgrades or repairs to your home that you’ve been putting off.

2. Using — and Not Using — Your Vacation Property

Do you own a vacation home? If you rent out a second home (or your principal residence) for 15 days or more during the year, you’ll have to report the income on your tax return. But you also may be entitled to deduct some or all of your rental expenses — such as utilities, repairs, insurance and depreciation. Exactly what you can deduct depends on whether the home is classified as a personal residence or rental property for tax purposes.

Your vacation home is classified as a personal residence if personal use during the year exceeds the greater of 1) 14 days, or 2) 10% of the days you rent out the home at fair market rates. Personal use generally means use by an owner, certain family members of an owner and any other party (family member or otherwise) who pays less than fair market rates.

When calculating personal use, disregard days of vacancy and days spent substantially on repairing and maintaining your property (not improving it). These generally aren’t counted as personal-use days, even if family members use the property for recreational purposes on the same day.

Here’s how the tax treatment varies:

Personal residence. You can deduct rental expenses only to the extent of your rental income. Any excess can be carried forward to offset rental income in future years. If you itemize deductions rather than claiming the standard deduction, you can also take an itemized deduction for the personal portion of both mortgage interest and property taxes, subject to the applicable limits. (For more on itemizing vs. claiming the standard deduction, see No. 6 below.)

Rental property. You can deduct rental expenses, including losses, subject to the real estate activity rules. Property tax attributable to the rental use of the home isn’t subject to the limit on the itemized state and local tax (SALT) deduction. You can’t deduct any interest that’s attributable to your personal use of the home. However, if you itemize deductions, you can take the personal portion of property tax as an itemized deduction (subject to the SALT limit — see No. 3 below).

In some situations, it may be beneficial to reduce personal use of a vacation home so it will be classified as a rental property.

3. Hitting the Road or Water with an RV or Boat

Are you shopping for a recreational vehicle (RV) or boat for personal use this summer and beyond? If you itemize deductions, you can deduct state and local sales taxes paid during the year — including the potentially large sales tax amount on your RV or boat purchase — in lieu of deducting your state and local income taxes.

With the SALT deduction limit more than quadrupled for 2026 by last year’s One Big Beautiful Bill Act (OBBBA), there may be a bigger likelihood that your total SALT expense won’t exceed the limit — $40,400 ($20,200 for married taxpayers filing separately). However, when modified adjusted gross income (MAGI) exceeds the applicable threshold, the cap is reduced by 30% of the amount by which MAGI exceeds the threshold — but not below $10,000 ($5,000 for separate filers).

If instead of keeping track of all your actual expenses, you choose to deduct sales taxes based on the optional IRS table, you can still write off the actual sales tax for certain high-cost items — including RVs and boats — in addition to the table amount (subject to the overall SALT limit and other rules).

Also be aware that an RV or boat can qualify as a personal residence if it has sleeping, cooking and toilet facilities. If this is the case and you itemize deductions, you may also be able to deduct mortgage interest on the RV or boat, as well as state and local property tax on it, if applicable, within the usual limits.

4. Combining a Business Trip with a Vacation

Do you have to go on any business trips this summer? If you’re the owner of the business or self-employed and the primary purpose of a trip is business-related, you potentially can write off a portion of your travel expenses — even if you do some vacationing while you’re away.

For instance, if you fly cross-country and spend the workweek in meetings and the weekend sightseeing, the entire cost of your airfare plus costs of lodging, local transportation and meals during the workweek generally will be deductible within the usual tax law limits (such as the 50% limit on the meal deduction). But you can’t write off expenses for days not spent on business activities.

If your family accompanies you on the business trip, their expenses aren’t deductible (unless a family member is also an employee of your business and has a legitimate business reason to be on the trip). But you can write off what it would have cost you to travel alone. For instance, if you pay $250 per night for a hotel room and a single room costs $200, you can deduct $200 per night — but only for the period you’re doing business. If on Saturday and Sunday you’re primarily relaxing and enjoying vacation activities with your family, you can’t deduct any of the hotel expenses for those nights.

5. Sending the Kids to Day Camp

Are any of your children going to day camp this summer? Assuming you work full-time and certain other requirements are met, the cost qualifies for the dependent care credit.

For middle-income-and-higher taxpayers, the credit generally equals 20% of the first $3,000 of qualified expenses for one child or 20% of up to $6,000 of such expenses for two or more children. That’s a maximum credit of $600 for one child or $1,200 for two or more children. For 2026, the OBBBA increased the credit percentage from 35% to 50% for lower-income taxpayers, and certain middle-income taxpayers may be eligible for a percentage between 20% and 35%.

This tax break is available only for day camps, including specialty camps for athletics or the arts. An overnight camp doesn’t qualify.

6. Doing a Big Cleanup

Are you planning to spend some downtime this summer cleaning out the garage, attic or basement? You’ll likely find some household goods — such as used clothing or furniture — that you don’t need or want anymore. Instead of discarding these items, consider donating them to charity. Assuming they’re still in good condition, you’ll be eligible for a charitable deduction based on their current fair market value.

However, you can deduct donations of property only if you itemize deductions. If you expect to claim the standard deduction in 2026 (rather than itemizing), you won’t get any tax break from the donation. Itemizing saves tax only if your total itemized deductions for the year are higher than your standard deduction. With today’s high standard deductions, many taxpayers’ itemized deductions don’t exceed that threshold.

Some charitably inclined taxpayers may benefit from a “bunching” strategy, in which they bunch their charitable donations into alternating years and itemize deductions in those years. If it makes sense for you to claim the standard deduction for 2026 and bunch donations into 2027, consider setting aside the items you’d like to donate and dropping them off at your chosen charity next year.

But also be aware that, beginning in 2026, the OBBBA imposed a 0.5% floor on the charitable deduction for itemizers. This generally means that only charitable donations in excess of 0.5% of your adjusted gross income (AGI) will be deductible if you itemize deductions. So, if your AGI is $100,000, your first $500 of charitable donations for the year won’t be deductible.

Before Summer Slips AwayA little tax planning now may pay off when it’s time to file your return next year. If you have questions about any of these strategies or would like to discuss your situation, contact your tax advisor.

Parents, grandparents and others can now contribute to Internal Revenue Code Section 530A accounts — also known as “Trump Accounts” — to benefit eligible children. This new type of tax-advantaged savings vehicle was created by last year’s One Big Beautiful Bill Act.

Who’s Eligible?

A 530A account can be set up for anyone who’ll be under age 18 at the end of the tax year and who has a Social Security number. Beginning July 4, 2026, contributions can be made to accounts for eligible beneficiaries.

In addition, U.S. citizen children born from January 1, 2025, through December 31, 2028, may qualify for an initial $1,000 government-funded deposit. If your child is eligible for the government contribution but you determine that another savings vehicle is better for your family, you should still seriously consider opening a 530A account. Even if you or other family members never make a contribution, the tax-deferred compounding growth on $1,000 can lead to a substantial balance over time.

How Is the Account “Tax-Advantaged”?

A 530A account is essentially a type of IRA in which account funds can grow tax-deferred until withdrawn. But it’s initially subject to special rules that don’t apply to other IRAs. These rules are generally in effect only during the period that begins when the account is opened and ends December 31 of the year before the calendar year in which the child reaches age 18 — what’s referred to as the “growth period.” During this time:

• The child doesn’t have to have earned income in order for account contributions to be made,
• The account has a lower annual contribution limit than traditional and Roth IRAs, generally $5,000 (adjusted for inflation after 2027),
• Contributions must be made during the calendar year to count toward that year’s limit — the contribution deadline doesn’t extend to April 15 of the next year as it does for traditional and Roth IRAs,
• Individual contributors can’t claim a tax deduction for their contributions,
• The account funds can be invested only in eligible investments — generally, mutual funds or exchange-traded funds (ETFs) that track an index of primarily U.S. companies, such as the Standard and Poor’s 500, and meet other criteria, and
• The account generally can’t make distributions (including hardship distributions).

Beginning January 1 of the year the child turns 18, most of the special growth-period rules cease to apply, and the traditional IRA rules generally take effect. Applicable traditional IRA rules include those regarding contributions, distributions, required minimum distributions (RMDs), taxation (including the 10% early withdrawal penalty) and Roth IRA conversions.

What Are the Reporting Requirements?

In late June, the IRS issued Revenue Procedure 2026-25, which, among other things, allows qualifying 530A account contributions to be treated as completed gifts rather than gifts of a future interest. Why does this matter? It means that your contributions may qualify for the gift tax annual exclusion and you may not have to file a gift tax return (Form 709) — but only if certain requirements are met.

Under safe harbor rules included in this IRS guidance, 530A account contributions will be eligible for the gift tax annual exclusion and you won’t be required to file a gift tax return if all these requirements are met:

• Your cash contributions to 530A accounts for beneficiaries under age 18 are your only taxable gifts for the calendar year.
• The total amount of each beneficiary’s gift (including contributions to a 530A account) doesn’t exceed the gift tax annual exclusion amount ($19,000 per recipient for 2026).
• Your 530A account contributions don’t result in a gift tax or generation-skipping transfer (GST) tax liability after applying your available lifetime gift and GST tax exemptions ($15 million each for 2026, less any exemption you’ve already used during your life).
• You’re not otherwise required to file a gift tax return for the year.

But if just one of the conditions isn’t met, your contributions will be treated as gifts of a future interest, which means they won’t be eligible for the annual exclusion and you must file a gift tax return for every account beneficiary who receives a contribution. The gifts can still be tax-free, but you’ll have to apply your lifetime gift tax exemption — and your GST tax exemption if the GST tax also applies (generally when a gift is made to a grandchild or someone else two generations or more below you).

How Are the Accounts Set Up?

Unlike regular IRAs, 530A accounts must be created initially by the U.S. Treasury Secretary. To have an account established for your child, you must make an election. Also, as mentioned, the child must have a Social Security number before the election is made.

You can make the election by filing Form 4547, “Trump Account Election(s),” through the Trump Accounts app (available at trumpaccounts.gov) or through your online IRS Individual Account.

Who Else Can Contribute?

During the growth period, 530A accounts may receive several types of contributions in addition to those made by parents, other family members, friends or the children themselves. For example, an account can accept a “qualified general contribution” funded by states and political subdivisions, the federal government, Indian tribal governments, or certain nonprofits.

These contributions, which are funneled through the Treasury Department, can be made only to “qualified classes,” such as children who reside in certain areas or were born in specific years. They don’t count toward the annual contribution limit.

Employers can contribute up to $2,500 per year (adjusted for inflation after 2027) to the accounts of employees or their dependents, with contributions generally excluded from the employee’s taxable income. The limit applies on a per-employee basis. However, employer contributions do count toward the annual contribution limit.

Can the Accounts Help Save for Education?

530A accounts might not be the best option for building savings for your child’s education. Both Sec. 529 plans and Coverdell Education Savings Accounts (ESAs) also allow tax-deferred growth, but withdrawals for qualified education expenses are tax-free. On the other hand, 530A account distributions are taxed as ordinary income to the extent that they aren’t attributable to after-tax contributions (though if used for education expenses, they may be eligible for an exception to the early withdrawal penalty).

Plus, tax-free 529 plan and ESA distributions can be used to fund elementary and secondary education expenses (subject to certain limits). 530A funds can’t be withdrawn until the year the child turns 18.

There are other 529 plan advantages. Contributions may qualify for state tax deductions. And they aren’t subject to an annual limit, provided they don’t exceed the amount needed to cover the beneficiary’s qualified expenses. (Note that gift tax rules might apply, depending on the contribution amount.)

Moreover, up to $35,000 of funds left in a 529 plan account for at least 15 years can be rolled over into the beneficiary’s Roth IRA without incurring the normal 10% penalty for nonqualified withdrawals or resulting in taxable income. Roth IRAs don’t have RMDs, and qualified withdrawals are tax-free. Certain restrictions on 529 plan rollovers apply, but this rollover option could be a significant advantage over 530A accounts, which eventually become traditional IRAs and would be subject to some tax if converted to a Roth IRA.

Investment options for 529 plans are limited to those permitted by the plan administrator, typically mutual funds and ETFs. But they may offer greater choice than 530A accounts. ESAs allow a wider range of investments, typically everything your broker offers. However, the maximum contribution to an ESA is limited to $2,000 per beneficiary per year, and contributors are subject to income-based contribution limits.

Can Your Family Benefit?

530A accounts can help eligible children build long-term wealth and give them a head start on retirement savings. They can prove useful well before retirement, too: Although penalties will generally apply to withdrawals before age 59½, there are exceptions, such as for first-time homebuyer expenses up to $10,000. Discuss with your tax and financial advisors how you might use a 530A account to your family’s benefit.