We have quite a few client conversations each year that go like this... “I really like the idea of saving for my child's (or grandchild’s) future education BUT I am worried we might overfund the 529 plan and the dollars can only be taken out with a 10% penalty.” If you have ever thought this before, we have good news for you!
The Secure Act 2.0 has added a unique wrinkle to the 529 savings plan provisions. Investors can roll up to $35,000 from a 529 plan into a Roth individual retirement account starting in 2024. This allows you to utilize any leftover money originally intended for a child's college (or kindergarten through 12th grade) costs into retirement dollars without paying any income tax. With tax-free growth and withdrawals, Roth IRAs are considered one of the most effective retirement savings vehicles. This rollover provision is a great way of tax-effectively passing wealth to the next generation.
The Details
- The new law says that a 529 account has to be in existence for at least 15 years before being rolled into a Roth IRA.
- Contributions and growth from the past five years cannot be shifted over.
- Any amount of money that is rolled over from a 529 plan into a Roth IRA account will be subject to the Roth IRA annual contribution limits. The contribution limit for 2024 is scheduled to be $6,500 currently, with an extra $1,000 allowed for those individuals over the age of 50 (i.e. the catch-up limit allowance).
If you have any specific questions about a 529 rollover or if you would like to do some 529 planning for your children or grandchildren, please let us know.
About the Author
Matt Price serves as a Partner and Director for The Price Group of Steward Partners. He resides in Houston with his wife, Emily, their three children and "Fisher" the family golden retriever. Matt studied at the University of Pennsylvania – Wharton School of Business for his Certified Investment Management Analyst (CIMA®) designation after receiving his undergraduate degree from the University of Tennessee - Knoxville. Over the past 11 years, Matt has helped families make high quality, common sense decisions regarding their wealth and their legacy. Matt firmly believes everyone needs a wealth coach!
Content Is Nothing Without Context
Are you looking for a weekly financial market commentary that provides context? Sign up to receive our weekly commentary HERE. We are helping make the complex simple.
Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement and should be read carefully before investing.
Rules and laws governing 529 plans are varied and subject to change. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state.
The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
When Steward Partners Investment Solutions LLC, its affiliates and Steward Partners Wealth Managers provide “investment advice” regarding a retirement or welfare benefit plan account, an individual retirement account or a Coverdell education savings account. Steward Partners is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Steward Partners provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Steward Partners will not be considered a “fiduciary” under ERISA and/or the Code. Tax laws are complex and subject to change. Steward Partners does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account.
AdTrax 4766787.37 Exp 1/25