New 529 Plan to Roth IRA Rollover Opportunity

As we step into 2024, significant changes are on the horizon for families planning for college savings, thanks to the 2022 SECURE Act 2.0. This legislative update introduces a noteworthy opportunity for those utilizing 529 plans—an option to roll over funds into Roth IRAs. At Standard Equity, we are committed to keeping you informed and equipped to navigate these changes effectively.

Key Changes to Note

Starting from 2024, beneficiaries of 529 plans will be able to transfer up to $35,000 of their funds into Roth IRAs across their lifetime. This development is exciting because it offers a new way to approach financial planning and saving for future needs beyond higher education.

However, there are specific criteria to be aware of:

• Lifetime Cap: The total amount that can be rolled over from a 529 plan to a Roth IRA is capped at $35,000.
• Contribution Limits: These rollovers are subject to the annual contribution limits of Roth IRAs, which may require strategic planning to maximize the benefits.
• Account Age Requirement: The 529 account must be at least 15 years old to qualify for a rollover. Importantly, if the account beneficiary is changed, this 15-year period resets.

Strategic Implications for Families

Families have traditionally transferred funds between 529 accounts of different children to optimize their college savings. With the introduction of this rollover option, there's an additional strategy to consider—allowing children who may not fully use their 529 funds for college to instead support their early retirement savings.

This option is particularly useful in complex family situations. For example, if one child finishes their education and funds remain, the typical response might have been to change the beneficiary to another college-bound child. However, under the new rules, doing so would reset the 15-year clock necessary for a Roth IRA rollover.

Recommended Approach

To navigate this without losing the potential for a Roth IRA rollover, consider rolling over the remaining funds to another child’s existing 529 account. This method does not affect the original account’s age, preserving the eligibility for future rollovers to a Roth IRA. It’s important to remember that such transfers can only be conducted once every 12 months.

How We Can Help

At Standard Equity, we understand that these changes may bring up questions and potentially complex decisions for your family. We encourage you to reach out by replying to this message or calling our office. Our team is ready to provide personalized guidance to help you adjust your financial plans and make the most of these new opportunities.

By staying proactive and informed, you can ensure that your family's financial strategy remains robust and responsive to both current educational needs and future financial goals.