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For many families, 529 plans have long been a popular way to save for their children’s education. These tax-advantaged savings accounts allow parents to make contributions that grow tax-free and can be withdrawn without paying federal income tax as long as the money is used for qualified educational expenses.

But now, parents who have saved diligently and find themselves with more money in their 529 plan than their child will need for educational expenses may have a new option. Starting in 2022, it will be possible to convert 529 plan savings into a Roth IRA.

This is an exciting development for many families, as Roth IRAs offer some unique benefits. Unlike traditional IRAs, contributions to Roth IRAs are not tax-deductible in the year they are made. However, withdrawals from a Roth IRA in retirement are tax-free, which can be a major advantage for taxpayers.

The ability to convert 529 plan savings into a Roth IRA would allow parents to continue to grow their savings tax-free, while also taking advantage of the tax-free withdrawals later in life. It would also give parents more flexibility if their child decides not to pursue higher education, or if they receive scholarships or grants that cover their educational costs.

It’s important to note that there are some caveats to this option. First, any 529 plan contributions that were deducted on state tax returns will need to be added back to income in the year of the conversion, potentially resulting in a higher tax bill.

Additionally, parents will need to carefully consider the tax implications of the conversion. For example, if parents are in a high tax bracket now but expect to be in a lower tax bracket during their retirement years, it may make sense to wait to convert the 529 plan savings into a Roth IRA.

Despite these considerations, the ability to convert 529 plan savings into a Roth IRA is likely to be a welcome development for many parents who have saved diligently for their child’s education. It’s an option that gives families more flexibility and can provide long-term tax benefits.