August 2023
Financial Planning

529 Plan Update

By Myra Alport

Of the many SECURE Act 2.0 changes signed into law on December 29, 2022, there’s been less attention paid to the expansion of 529 savings plans. Beginning January 2024, funds from an existing 529 account can be transferred tax-free to a Roth IRA for the same beneficiary. This new provision is touted as another way to provide tax-free growth and tax-free withdrawals in retirement.

On the bright side, any unused 529 plan funds have the potential to kickstart a beneficiary’s Roth IRA savings. This situation may occur in the case of account overfunding, a student who receives a sizeable scholarship or opts out of attending college altogether.

Sounds encouraging, right? There are caveats.

• The 529 account has to have been open for at least 15 years. This timeframe is easily met if accounts are opened when children are very young.

• The beneficiary of both the 529 account and the Roth IRA must be the same person.

• Annual rollovers are subject to the maximum yearly IRA contribution limits ($6,500 for 2023 as for example), minus any other IRA contributions that have already been made.

• The maximum lifetime rollover limit is $35,000 per beneficiary.

• Rollovers may not include contributions (or earnings) made in the last 5 years.

Please reach out to your advisor for further clarification of this new rule.

References: https://my529.org/secure-act-2-0/ https://wealthtender.com/insights/financial-planning/secure-act-529-plans/ 

If you have questions, please contact us.

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