529s: Untapped funds may now roll over for retirement
A 529 plan is an education funding savings account that can be used to cover college expenses and up to $10,000 per year for some pre-college school expenses for qualified beneficiaries.1 529s have been popular savings vehicles for some time but are likely to become even more popular now, thanks to upcoming changes in tax laws.
If you’ve considered setting up a 529 account for a loved one, but worries around strict qualified expenses gave you pause, you’ll be interested in this update!
New 529 plan flexibility
Beginning in 2024, many families may be able to transfer money from a 529 college savings program to a Roth IRA. If your child doesn’t go to college, you can roll the unused funds over into a Roth IRA for their benefit, giving your child an early start on retirement savings.2
How much can be rolled over and when
The limits on contributions from 529 plans to Roth IRA are capped at the annual IRA contribution limit, with a lifetime limit of $35,000. Keep in mind, the rollover option is only available for accounts that have had funds in them for at least 5 years.3
How to choose a 529 plan
These plans vary from state to state, with some states allowing 529 contributions to be deducted from state taxes if you are a state resident. Some states offer prepaid plans, allowing you to “prepay” and lock-in tuition rates at eligible public and private colleges and universities.
You can start the process by asking your PFM advisor to review your state’s plan and compare it with other state plans. Don’t have an advisor? Contact us to learn more.
1 https://www.forbes.com/advisor/student-loans/529-plan-k-12-education/
2 https://www.irs.gov/credits-deductions/individuals/qualified-ed-expenses
3 https://www.nytimes.com/2022/12/23/your-money/401k-roth-ira-new-rules.html
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