Important Update: Changes to 529 Plans and Roth IRA Rollovers

I would like to bring to your attention an important change to 529 plans that may impact your college savings strategy. As part of the SECURE 2.0 Act, new rules allow leftover funds in 529s to be transferred into a Roth IRA. However, it is necessary to be mindful of many requirements and restrictions.

The new rule, which takes effect in 2024, allows a 529 account holder to transfer money to a Roth IRA account under specific conditions. The main benefit of this new rule is that it removes some of the uncertainty that can happen if your kids don't need the 529 money or you overfunded the account.

Here are the key eligibility criteria and restrictions for moving a 529 to a Roth IRA:^1,2

• This part of the SECURE 2.0 Act will become effective after December 31, 2023.
• The 529 plan must have been open for a minimum of 15 years.
• Changing beneficiaries to another student may restart the 15-year clock.
• The owner of the Roth IRA must be the beneficiary of the 529 plan (meaning the student).
• Any money moved from a 529 plan to a Roth IRA account will be subject to Roth IRA annual contribution limits. The Roth IRA contribution limit in 2024 is scheduled to be $6,500, with an extra $1,000 allowed for individuals over age 50.
• The lifetime limit is $35,000.

It is crucial for families to have a thoroughly crafted financial strategy to help pay for the cost of college. We have helped many clients devise such strategies for their children and grandchildren, and we specialize in crafting personalized financial solutions that cater to your unique needs and goals.

If you are considering a 529 plan, we may be able to help. Our professionals can provide more detailed information about 529 plans and offer guidance and insight into the state plan you are considering. We look forward to hearing from you.

<sup>1. SavingForCollege.com, April 19, 2023
2. SavingForCollege.com, December 24, 2022</sup>

^{A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. State tax treatment of 529 plans is only one factor to consider prior to committing to a savings plan. Also, consider the fees and expenses associated with the particular plan. Whether a state tax deduction is available will depend on your state of residence. State tax laws and treatment may vary. State tax laws may be different from federal tax laws. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax.}

^{To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a 5-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.}