
SECURE ACT 2.0 - Impact on 529 options
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- Normally, funds can only be withdrawn for qualified education expenses.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