The Secure Act 2.0 is now law. That means starting in 2024, unused 529 funds can be rolled into a Roth IRA without incurring penalty. This is a distinct change from the previous system where 529 account holders typically had to change account beneficiaries or suffer income taxes and 10% penalty for a nonqualified withdrawal.
There are a few parameters to consider before a rollover:
- The Roth IRA must be established for the beneficiary (student)
- A lifetime maximum of $35,000 can be transferred from a 529 to a Roth IRA
- The income phaseout for Roth Contributions does not apply for rollovers, however the annual contribution limit ($6,500 or $7,500 in 2023) still applies
- The 529 account must be at least 15 years old and there is a five-year exclusion. That is 529 contributions made within the last 5 years cannot be rolled over.
Let us know if you have any questions about Secure Act 2.0 and its impact on your financial plan.
