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!
