New 529 To Roth IRA Rollovers

529 plans allow tax-free withdrawals for qualified higher education expenses. But sometimes not all of the funds can be used to fund higher education. Perhaps the beneficiary gets a scholarship or the 529 plan is over funded. If money is removed from the 529 account for anything other than higher education expenses, the earnings in the account will be subject to tax and penalties. And your state may seek to recapture any benefits previously provided. Currently, you may be able to avoid this by changing the beneficiary. But Secure 2.0 creates a new way to remove unused funds from a 529 account. Beneficiaries of 529 accounts can, beginning in 2024, transfer funds from a 529 account to a Roth IRA. The lifetime limit on such transfers is $35,000. And annual transfers are limited to the beneficiary’s annual Roth IRA contribution limit.

Kim & Rosado LLP
www.kimrosado.com

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There has been a recent change to the rules regarding 529 plan account owners…

More specifically, account owners can now roll over funds from their 529 plan into a Roth IRA without incurring any penalties or taxes. This is a significant development, as it allows families to maximize their education savings while also potentially providing additional retirement income down the road.

Here are some key details to keep in mind when considering a 529 to Roth IRA rollover:

– Funds rollovers are currently allowed up to $10,000 per year, per beneficiary. This means that if you have multiple children with 529 accounts, you can potentially rollover $10,000 per child each year.
– The rollover must be completed within 60 days of withdrawing the funds from your 529 plan. Any funds remaining after the rollover deadline will be subject to regular 529 plan rules and taxation.
– There are income limits for Roth IRA contributions, so you’ll need to make sure you are eligible to contribute to a Roth IRA before initiating a rollover.

Before making any changes to your 529 plan or considering a rollover, be sure to consult with a financial advisor or tax professional to evaluate your individual situation and goals. While a 529 to Roth IRA rollover can be a useful strategy for some families, it may not be the best fit for everyone.

Overall, the new 529 to Roth IRA rollover rules are a valuable tool for families looking to maximize their education savings and retirement planning. With careful consideration and expert guidance, families can take advantage of this new opportunity to build a stronger financial future for themselves and their loved ones.