The 529 to Roth IRA Rollover

April 25, 2024

The passing of Section 126 of the SECURE 2.0 Act signed into law in December 2022 marks a significant development for 529 account holders. 529 account holders can officially roll over 529 funds into a beneficiary’s Roth IRA without a tax implication.1 This provides great news to families who have been worried about overfunding 529 education savings plans.

529 plans have long been valued for their tax advantages. The investments grow tax-free, and distributions are tax-free when used for qualified education expenses (e.g., tuition, room and board, off-campus housing, books and supplies, computers/technology). Families can also change a beneficiary every year.  For example, if an eldest child doesn’t use all their 529 funds, the funds can be transferred for the benefit of another child.

With the new law in place, 529 account holders can now do a tax-free rollover of unused 529 funds to a Roth IRA to continue tax-free growth and distributions. There is currently a lifetime limit of $35,000 per beneficiary.2

Some savvy investors are using this opportunity to fund 529 plans prior to starting a family to extend their long-term time horizon and thus maximize savings.  



Citations:

1. United States Securities and Exchange Commission (2023, August 31). Updated Investor Bulletin: An Introduction to 529 Plans. 

2. United States Senate. SECURE 2.0 Act of 2022.


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