– Same Experienced Team! 
As we spoke about in our previous blog about the importance of 529 plans, we wanted to inform you of the latest adjustments to these plans noted in the SECURE 2.0 Act. Check out the blog below for more information on what this means for you and your family.
Changes to 529 Plans in the SECURE 2.0 Act
The SECURE Act was initially passed by Congress at the end of 2019 and was intended to improve retirement savings opportunities. It was a big deal at the time and the most significant piece of retirement legislation since the 2006 Pension Protection Act.
Congress came together to pass SECURE 2.0 at the end of 2022 to build on this popular legislation and clarify some of its provisions.
The SECURE 2.0 Act includes 92 new provisions designed to promote savings, add incentives for businesses to offer retirement plans to their employees, and provide more overall flexibility to those saving for retirement.1
While increasing the starting age for required minimum distributions to 73 made the headlines, another important change for those saving for college was the addition of an option to move the unused portion of a 529 plan to a Roth IRA. But several criteria are involved in this process, and eligibility requirements must be met.
The new rule, which goes into effect in 2024, allows a 529 account holder to move money to a Roth IRA account under certain conditions. The main benefit of this new rule is that it removes some of the uncertainty regarding whether your kids will need the 529 money or whether you may have overfunded the account.
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
Moving a 529 to a Roth IRA4
- This part of the SECURE 2.0 Act becomes effective after December 31, 2023.
- The 529 plan must have been open for a minimum of 15 years.
- Changing beneficiaries to another student may restart the 15-year clock.
- The owner of the Roth IRA must be the beneficiary of the 529 plan (meaning the student).
- Any money moved from a 529 plan into a Roth IRA account will be subject to the Roth IRA annual contribution limits. The Roth IRA contribution limit in 2024 is scheduled to be $6,500, with an extra $1,000 allowed for individuals over age 50.
- The lifetime limit is $35,000.
This article is for informational purposes only and is not a replacement for real-life advice. There are some additional criteria that go along with the updated rules, so it’s best to speak to a financial or tax professional who has a detailed understanding of the state plan you are considering.
Paying for College
In 2021, the average cost for a year of college, including tuition, fees, room, board, and other expenses, was $35,551. That’s about $142,000 for a four-year degree.5
Footing the higher education bills of your children or grandchildren may seem daunting, but it can be within reach with the right type of preparation.
The SECURE 2.0 Act significantly changes 529 plans, offering more flexibility and choices for families saving for education. We have helped many clients create college savings strategies for their children and grandchildren. It’s a specialty of ours, and it’s one of the more rewarding aspects of the services we provide.
If you’re considering a 529 plan, we may be able to help. Our professionals can provide more detailed information about 529 plans and offer guidance and insight into the state plan you are considering. We look forward to hearing from you.
- AM.JPMorgan.com, January 3, 2023
- SavingForCollege.com, May 11, 2023
- SavingForCollege.com, April 19, 2023
- SavingForCollege.com, December 24, 2022
- BestColleges.com, April 11, 2023