I’ve long touted the benefits of a 529 Plan for college savings—savings grow tax-deferred; often there are state tax benefits; the plans have a wide definition of qualified educational expenses; beneficiaries could be easily changed, and so on. One complaint investors have often shared is that once funds are contributed to a 529 Plan, they’re locked in for education purposes only.
While 529 plans have always provided ample opportunities to use or withdraw the money, a provision in the SECURE Act 2.0 now allows account owners to roll over funds to a Roth IRA for the beneficiary. A lifetime maximum of $35,000 can be rolled over; however, annually the rollover is limited to the maximum annual Roth contribution, which is $7,000 in 2024 for people younger than 50. Unfortunately, this new rule comes with several conditions. The 529 Plan account must have been open for at least 15 years, contributions and earnings from the last five years cannot be rolled over, and the beneficiary must have earned income at least equal to the amount of the rollover.
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