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Unused 529 Plan Money? Consider the New Roth IRA Rollover Option

February 26, 2024

By Jonathan Smith
Securities Analyst

529 plans are designed as great tools to earmark funds for your child’s future education. The new law allows unspent funds to be rolled over into a Roth IRA, making the 529 plan option more attractive. It’s important to understand the benefits and hurdles to determine if this is the correct strategy for you.

Secure 2.0 Act

Secure Act 2.0 was signed into law on December 29th, 2022, with a comprehensive package of more than 90 provisions covering all types of retirement savings plans. The new law is intended to increase retirement savings in workplace plans, individual retirement accounts (IRAs), and increase of tax credits for small employers establishing a new retirement plan.

One important feature that began in 2024 was the provision allowing a tax-free rollover from a 529 account to a Roth IRA. This flexibility helps to address the needs of account owners whose beneficiaries do not pursue higher education or who have leftover funds within their 529 account.

What is a 529 Plan?

A 529 college savings plan is a tax-advantaged account providing tax-deferred earnings, and tax-free withdrawals for qualified education expenses. It can also help pay for other qualified school-related expenses such as fees, books, supplies, computer equipment, and room and board. In addition, it allows distributions up to $10,000 per year for K-12 tuition or paying off student loans for the beneficiary tax-free. One can also transfer the balance from one beneficiary to another.

Key Highlights of the Provision

Below are some key highlights of the provision that took effect in 2024:

A rollover can only be made to the Roth IRA of the 529 beneficiary, not the owner of the 529 account.
The 529 account must be existence for a minimum of 15 years before rolling funds to a Roth IRA.
The maximum lifetime account rolled over from a 529 account to a Roth IRA is $35,000 per beneficiary.
The maximum annual 529 rollover is limited to the IRA contribution limit in that year.

This new provision is a great way for Americans to put their unused funds in a 529 plan to work. It is designed to be a backup plan or additional option for the beneficiary. If you have any questions to determine your eligibility, or this is the right option for you, please reach out and contact your Wealth Management team. We can help answer any questions you may have. Your financial success matters to us!

About the Author

Jonathan Smith

Jonathan Smith is a Securities Analyst for the Security National Wealth Management team. He has more than 10 years of experience in the investment and financial field. He is a graduate of Briar Cliff University in Sioux City where he lives with his wife and growing family. In the community, Jonathan serves on multiple boards, including the Fiscal and Public Policy Commission for the City of Sioux City, Girls, Inc., the Siouxland Community Foundation and the Ronald McDonald House of Siouxland.

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