Do you have leftover funds in a 529 plan account?
Education savings plans are excellent tools for tax-advantaged savings for college. Previously, withdrawals from a 529 plan for any reason other than qualified education expenses were subject to taxes and penalties. This made many savers cautious about over saving in a 529 plan.
The SECURE 2.0 Act of 2022 acknowledged concerns about money being “trapped” in a 529 plan if it was not needed for education expenses. The new law allows leftover 529 funds to be rolled into a Roth IRA for the beneficiary.
There are some limitations:
- The rollover from 529 to Roth IRA is capped at $35,000 over the beneficiary’s lifetime.
- Rollovers are subject to the Roth IRA annual contribution limits (the current limit is $7,000 for those under age 50, so it would take five years to roll over the maximum amount at today’s limit).
- The 529 account must have been open for more than 15 years.
If you have delayed opening a 529 account for your child out of fear of trapped funds, now is a great time to open one. Start the 15 year clock so that you can roll the excess into a Roth IRA for your child if they don’t end up needing all the money for college.
If you have a 529 account for your child (or yourself) and they have already completed their education, think about moving leftover funds to a Roth IRA.
Please let us know if we can help you with this!
Together Planning is a registered investment advisor. The information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Together Planning has a reasonable belief that this marketing does not include any false or material misleading information statements or omissions of facts regarding services, investments, or client experiences. FIRM NAME has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Be sure to consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.