The new rule that allows 529 plan beneficiaries to transfer funds to a Roth IRA starting in 2024 is a significant development for families. This change can greatly benefit those planning for both education and retirement.
Background and Key Changes
Signed into law in 2022, the SECURE Act 2.0 includes provisions enabling 529 to Roth IRA transfers starting in 2024. This development has generated considerable excitement as it opens up new possibilities for long-term financial planning. To take advantage of this new rule, there are specific criteria that must be met.
Eligibility Criteria
There is a $35,000 lifetime limit on rollovers from 529 plans to Roth IRAs for each beneficiary. Moreover, these rollovers are subject to Roth IRA annual contribution limits. One crucial aspect is that the 529 account must be more than 15 years old at the time of the rollover. Additionally, any changes to the beneficiary will reset this 15-year clock.
Strategic Planning for Families
Traditionally, families have moved unused funds between different 529 accounts to cover college savings. However, with the new 2024 rule, parents might consider using the Roth IRA rollover option for the beneficiary’s retirement or other financial goals. This approach introduces a new layer of flexibility in managing long-term savings.
Potential Complications and Solutions
One potential complication arises if a parent or guardian had previously changed the beneficiary to another child before the 2024 change. A practical workaround is to request a rollover to another child’s existing 529 account instead of changing the beneficiary, thus preserving the 15-year lifespan. Note that this rollover can only be done once every 12 months.
Understanding the new 529 to Roth transfer rules can be highly beneficial for families planning for both education and retirement. Consulting with a financial advisor is highly recommended to explore how these changes can be best utilized in your specific situation.
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