529 Plans are Getting More Flexibility

Beginning in 2024, the SECURE Act 2.0 will allow the beneficiaries of 529 plans to roll over up to $35,000 during their lifetime to their own ROTH IRA without paying taxes or penalties. This is exciting news for those who have overfunded their 529 plan, have not gone to college, or would like more flexibility on what to do with the funds. We will be discussing this more with clients next year, but for now, below are the details:

• The 529 plan must have been open for at least 15 years.
• The owner of the Roth IRA and beneficiary of the 529 plan must be the same person.
• Contributions made to the 529 plan in the last five years, including the earnings of these funds, are not eligible.
• Transfers are still subject to annual Roth IRA contribution caps, which are currently at $6,500.
• You must have earned income up to the amount you are rolling over.

Parents and grandparents may now feel increased confidence in opening a 529 plan for a young child, knowing that unused college funds can become a jump-start on retirement savings or an emergency fund when the child becomes a young adult.