Saving for education has long been one of the primary benefits of a 529 education savings plan — but recent legislation has made these accounts even more versatile.
Beginning in 2024, the SECURE 2.0 Act allows eligible unused 529 plan assets to be rolled into a Roth IRA for the beneficiary without federal income tax or penalties, subject to certain requirements and limitations.
As a result, 529 plans may now help support two important long-term financial goals: education funding and retirement savings. This added flexibility may help reduce concerns about overfunding a child’s education account while continuing to provide valuable tax advantages.
There are several important eligibility requirements and limitations that apply to 529-to-Roth IRA rollovers, including account age requirements, annual contribution limits, earned income requirements, and lifetime rollover limits. Our team can help answer questions and coordinate with your tax professional regarding your specific situation.
Why Consider a 529 Education Savings Plan?
With education costs continuing to rise — from K-12 through higher education and continuing education programs — it is important to understand the tax-advantaged savings options available to families.
Below are several key benefits and features that make 529 plans an important consideration within a broader financial strategy.
Benefits
Federal Tax Advantages
Earnings within a 529 plan grow federally tax-deferred, and qualified withdrawals used for eligible education expenses are generally federal income tax-free.
Potential State Tax Benefits
Depending on your state of residence, contributions may qualify for a state income tax deduction or credit. State tax treatment varies.
Account Owner Control
The account owner maintains control over the account, including investment selections, beneficiary changes, and distributions.
Flexible Contributions
Parents, grandparents, family members, and friends may contribute to help support a beneficiary’s education goals.
Flexibility Beyond Traditional College Expenses
More Than Tuition
529 plan assets may be used for a variety of qualified education expenses, including tuition, required books and supplies, housing, meal plans, computers, and certain technology expenses.
Transferable Between Family Members
If one beneficiary does not need the funds, the account owner may generally transfer the balance to another eligible family member without tax consequences.
Roth IRA Rollover Opportunity
Beginning in 2024, eligible unused 529 plan assets may be rolled into a Roth IRA for the beneficiary, subject to IRS rules and limitations, including:
- The 529 account must generally have been open for at least 15 years
- Annual Roth IRA contribution limits apply
- The beneficiary must have earned income equal to or greater than the rollover amount
- A lifetime rollover limit of $35,000 per beneficiary currently applies
- Recent contributions and associated earnings may not qualify
Education Beyond College
529 plans may also be used for eligible K-12 tuition expenses (up to current annual limits), vocational programs, and certain continuing education opportunities. State tax treatment for K-12 withdrawals may vary.
Have Questions?
If you have questions about 529 plans, qualified education expenses, or the new Roth IRA rollover provisions, our team is here to help.
Please reach out to discuss your financial goals and determine whether a 529 education savings plan may be appropriate for your situation.
(301) 360-4477
thewillgroup@rswill.com