A new feature from the SECURE 2.0 Act that went into effect in 2024 allows for beneficiaries of 529 accounts to roll over up to $35,000 total over the course of their lifetime from their 529 account to a Roth IRA in their name. Some of the rules to be aware of to test your eligibility for this is that:
- The beneficiary is subject to the annual contribution limit for Roth IRA’s which is $7,000 for 2024 with a $1,000 catch up if you are over age 50.
- The 529 account must have been open for the past 15 years.
This new feature of SECURE 2.0 has provided an escape hatch for unneeded 529 plan funds and will allow $35,000 to be moved to a Roth IRA without penalty or taxes. We’ve helped several clients with this type of rollover. In the situations where it has worked nicely the beneficiaries have been in their late 20’s to early 30’s and are quite certain that they are done going to college. Having attained the college education level they desire they are now able to take some of these funds and get a head start on retirement savings.
Lastly, we’ve heard from folks who we are helping to set up 529s that this law change has provided comfort to them to fund more aggressively into 529’s as they now know they can use any extra money to help their beneficiaries with Roth investing.