SECURE ACT 2.0 - Impact on 529 options

Whitener Capital Management |
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Education
529
Retirement

 

SECURE Act 2.0:  529 plans to Roth IRAs, tax-free rollovers now allowed 

 

  • The Secure Action 2.0 $1.7 trillion federal spending package is heading to the President’s desk for signature
  • Starting in 2024, a provision is included in the new legislation that allows tax-free rollovers of money in 529 plans to Roth IRAs accounts 
  • 529 plans have been the vehicle of choice for college savings since 1996, they provide tax-free growth and aren’t taxable if the funds are used for tuition, room and board, books, fees, etc.
  • Normally, funds can only be withdrawn for qualified education expenses.  Withdrawing funds for non-qualified reasons has traditionally triggered taxable income and a 10% penalty on the investment earnings
  • Whitener Capital’s initial thoughts:
    • This change removes the concern, ‘what if my child doesn’t go to college?’
    • There is no longer an issue of overfunding the account
    • The ability to fund a Roth IRA for young adults is an outstanding way to begin retirement savings
  • Limitations:
    • There is a $35,000 lifetime cap on transfers
    • Rollovers are subject to the annual Roth IRA contribution limit ($6,500 in 2023)
    • The rollover can only be made the beneficiary of the account (not the owner or parent)
    • The 529 account must have been open for 15 years
    • Earnings and contributions made in last 5 years cannot be rolled over
  • Our team is following the details of the Secure Act 2.0 closely, please contact us if you would like to discuss how these changes impact your personal financial situation