Did you know the Secure Act 2.0 includes a provision that, starting in 2024, would allow for 529 plan funds to be directly rolled over to a Roth IRA? This provides an excellent opportunity to convert unused 529 plan funds to start a retirement account for the beneficiary.
Let’s break this down to understand the components of doing so.
- There is a lifetime limit of $35,000 per beneficiary. This would allow account owners to convert a portion of their 529 plan funds in the name of the established beneficiary to a Roth IRA for that same beneficiary without incurring taxes or penalties.
- Rollovers are subject to the annual Roth IRA contribution limits. For 2023, the maximum Roth IRA contribution is $6,500 for those younger than age 50.
- A rollover to a Roth IRA cannot exceed the 529 account beneficiary’s earned income for that year.
- The 529 plan account must have been open for more than 15 years. Rolling over funds from a 529 plan to a Roth IRA are subject to the earned income requirements and annual contribution limits.
- Rollovers cannot be made on contributions or earnings on those contributions made in the last five years.
It's worth noting that each state sets its own rules regarding 529 plans, so it's important to check with your state's plan to see if they have adopted these new provisions. Additionally, it's always a good idea to consult with a financial advisor or tax professional before making any decisions regarding the use of 529 plan funds. Additional details about the opportunity are expected before 1/1/2024, when the first conversions will be allowed.
*You should consult your personal tax advisor or your Fullen Financial Senior Advisor for more information.
About the Author:
Breanna Stein, CFP® is a Senior Associate Financial Advisor at Fullen Financial Group. She graduated Cum Laude from The Ohio State University with a Bachelor of Science in Consumer and Family Financial Services and a minor in Business Administration from the Fisher College of Business. During her time at Ohio State, she served as the President of The Student Financial Planning Association. Prior to joining Fullen Financial, Breanna worked for Ameriprise Financial, gaining meaningful industry experience. Breanna is originally from a small town in Northwest Ohio and now residing in the Columbus area. She is a member of the Financial Planning Association of Central Ohio as well as their NextGen chapter.
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