You may have seen news reports about a change in the financial planning landscape set to impact parents, grandparents, and other family members who want to utilize 529 plans for college savings.
The change is part of the 2022 SECURE Act 2.01 and is effective as of 2024. It allows 529 account beneficiaries to roll over funds from their 529 plan to a Roth IRA. While it’s exciting news, keep in mind that rollovers from 529 plans to Roth IRAs are only permissible if certain criteria are met, including:
- Beneficiaries of 529 plans can roll over only $35,000 to Roth IRAs during their lifetime.
- Rollovers are subject to Roth IRA annual contribution limits.
- Eligible 529 accounts must be more than 15 years old. If the account owner (typically a parent or grandparent) changes the beneficiary, the 15-year clock resets.
Traditionally, families with multiple children transferred unused funds from one 529 account to another to maximize college savings. With the new rule, parents or guardians may want to allow children who don’t exhaust their 529 to use the limited Roth IRA rollover option, potentially kickstarting their child’s retirement or supporting other financial goals.
It gets complicated, however, if one child has completed their education and, before this 2024 change, a parent or guardian renamed the beneficiary so unused funds could be accessed by another college-bound child.
The good news is there is a logistical workaround worth considering. Rather than changing the beneficiary of an account, simply request a rollover of funds to the other child’s existing 529 account. This leaves the original account (and its 15-year lifespan) intact and allows for future transfers between siblings if warranted. Keep in mind you can only do this once every 12 months.
If this change brings questions or causes you to consider adjusting your plans, please reply to this email or call the office. I’m happy to offer tailored guidance to address your concerns and help you make the best decisions for your family going forward.
As always, thank you for your trust and partnership. We look forward to hearing from you soon.
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This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
1. Finance.Senate.Gov, December 19, 2023
Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC). Neither Pensionmark Financial Group, LLC (“Pensionmark”) nor its advisers provide tax or legal advice. Please consult with an appropriate professional.