Did You Know? 529 to Roth IRA Conversion Opportunities

We wanted to share some news that could have a significant impact on your financial planning. Thanks to changes to the SECURE ACT 2.0 there are now situations in which funds can be converted from 529 savings plans into Roth IRAs.

This update brings about a groundbreaking change in the way we can utilize education savings accounts and retirement plans, offering additional flexibility for your financial goals. Let's break down why this may be important for you and provide some key guidelines to consider:

Key Advantages:

Tax and Penalty-Free Rollovers: Fear not about potential taxes and penalties on unused 529 assets. You can now roll up to $35,000 into a Roth IRA for the beneficiary, tax and penalty-free, over their lifetime.

Added Flexibility: The new rollover option provides extra flexibility, especially for those with excess 529 funds, recipients of scholarships, or those who choose not to pursue higher education. Rolling unused funds into a retirement account offers another way to support a beneficiary's long-term savings plans.

Guidelines to Consider:

To ensure the integrity of 529s as education savings accounts, there are certain conditions to be aware of:

• The 529 plan must be at least 15 years old.
• The Roth IRA should be in the name of the beneficiary.
• The rollover amount must not exceed the aggregate amount contributed to the program (including earnings) before the five-year period ending on the date of the rollover.
• Rollover contributions must be within IRA annual contribution limits.
• Income limitations for regular Roth IRA contributions do not apply, but the beneficiary needs to have a certain level of earned income.

Important Considerations:

While the core use of the new rule is clear, there are still some uncertainties. The IRS is expected to provide additional guidance on various aspects, such as potential resets to the 15-year clock due to changes in beneficiaries, transfers between 529 plans, or changes in account ownership.

We encourage you to stay informed about any updates and consult with us for personalized guidance based on your unique situation.

If you have any questions or would like to explore whether this new feature is a good fit for you, please don't hesitate to reach out to our team at Reinke Gray. We're here to support you in navigating these exciting changes and seeking your financial strategy aligns with your goals.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.