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Converting 529 Plans to Roth IRAs - Wise Steps to Maximize Your Education Savings



What?

The SECURE Act 2.0, effective in 2024, introduces significant changes to 529 education savings plans. A key feature is the ability to roll over up to $35,000 from a 529 plan to a Roth IRA without tax or penalty, under specific conditions (Reference). These conditions include the 529 plan being at least 15 years old, the rollover being subject to annual Roth IRA contribution limits, and the beneficiary of the 529 plan and the Roth IRA being the same individual​​​​​​​​.


So What?

These changes provide more flexibility and options for those who save for educational expenses using 529 plans. The rollover opportunity can help in situations where the 529 plan's funds are not fully utilized for education, allowing for a tax-advantaged transition to retirement savings. This change is particularly advantageous for beneficiaries who don't attend college, receive scholarships, or have leftover funds after completing their education.


Now What?

  • Plan Ahead: Consider the age of your 529 plan and its potential for a Roth IRA rollover.

  • Review Contributions: Ensure contributions are eligible for rollover (not within the last five years).

  • Understand Limits: Be aware of the $35,000 lifetime limit and annual Roth IRA contribution limits.

  • Beneficiary Consistency: The same individual must be the beneficiary for both the 529 plan and Roth IRA.

  • Income Requirement: The beneficiary must have earned income in the year of the rollover.


The 2024 changes to the 529 plan present an exciting opportunity for both current and future savers. By understanding and utilizing these new provisions, you can ensure that your or your beneficiary's education savings can be maximized, offering flexibility and security for both educational and retirement planning needs.


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