The biggest change in the SECURE Act 2.0 is the ability to roll over 529 plan funds to a Roth IRA starting in 2024.
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Mike Bernard, CFP® offers advisory services through KFG Wealth Management, LLC dba Korhorn Financial Group. This information is for general financial education and is not intended to provide specific investment advice or recommendations. All investing and investment strategies involve risk including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. Past performance is not a guarantee of future results….(read more)
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Starting in 2024, parents will have the option to roll over funds from a 529 college savings plan into a Roth IRA for their children. This new provision, included in the Building Economic Security Today (BEST) Act, aims to give parents more flexibility in how they save for their children’s future.
The 529 college savings plan is a tax-advantaged investment account that allows parents to save for their children’s education expenses. Contributions to a 529 plan grow tax-free and can be withdrawn tax-free when used for qualified educational expenses such as tuition, fees, and books. However, if the funds are not used for education expenses, withdrawals may be subject to income tax and a 10% penalty.
On the other hand, a Roth IRA is a retirement savings account that allows individuals to contribute after-tax dollars that grow tax-free and can be withdrawn tax-free in retirement. Roth IRAs also offer greater flexibility in terms of investment options and withdrawal rules compared to 529 plans.
Starting in 2024, parents will have the option to roll over funds from a 529 plan into a Roth IRA for their children without incurring any taxes or penalties. This means that parents can continue to save for their children’s education expenses in a tax-advantaged account while also taking advantage of the long-term growth potential of a Roth IRA.
There are several benefits to rolling over funds from a 529 plan to a Roth IRA. First, Roth IRAs offer more flexibility in terms of investment options and withdrawal rules compared to 529 plans. This can help parents better diversify their investment portfolios and maximize their long-term growth potential.
Additionally, funds in a Roth IRA can be used for a variety of purposes, not just education expenses. This means that if a child decides not to pursue higher education or receives a scholarship, parents can still use the funds in the Roth IRA for other purposes such as retirement, buying a home, or starting a business.
However, parents should carefully consider the pros and cons of rolling over funds from a 529 plan to a Roth IRA before making any decisions. While Roth IRAs offer greater flexibility and potential tax advantages, they also have contribution limits and income restrictions that may limit eligibility for some families.
Overall, the ability to roll over funds from a 529 plan to a Roth IRA starting in 2024 provides parents with a valuable tool for saving for their children’s future. By taking advantage of both tax-advantaged accounts, parents can better prepare for the rising costs of education while also ensuring long-term financial security for their children.
Could you put dollars into a 529 and then roll them over into a RothIRA each year? So that the investments can then be self directed?
Is the plan called five twenty nine or five two nine?
thanks for the info
yes we kept on getting conflicting answers about it hurting the financial aid THAT is why we never opened one. miss educating and or bad marketing.
What if you do a backdoor Roth in the same year can you still do this?
Perfect for giving to grandchildren.
Please don't say you don't know…. Wait till you know it's a fact. If you don't know, don't say anything !
Will the transferred amount be considered basis in my Roth IRA?
History lesson. Before the 529 started there was the Education IRA, now known as the Coverdell education savings account. The max you could put in was 500.00 now it’s 2000.00 per year. Question I have is can you rollover your Coverdell to a Roth IRA? Why not, it was started before 529 accounts existed.
Another "guru" told me the 15 yr clock would reset if I made myself the beneficiary post graduation, but I don't know if that is true or not.
Yes, that’s awesome. Really have been wanting to rollover into a self-directed option! Thanks for the info.