529 Plan is getting a big change and it’s a positive one. 529 college savings plans have been considered one of the best ways to save for college, but there was always a catch: the funds that are put into the 529 plans must be used towards qualified education expenses like fees, books, housing, and tuition.
But what if you don’t use all or, in some cases, any of the money you’ve put into a 529 plan because you or your child received a scholarship or decided they don’t want to attend college? Well now with 2024 in full swing, families can transfer any unused money from a 529 plan over to an individual Roth retirement account. What’s more is the transfer is free of income tax or tax penalties.
Do note that there are still a few guidelines and limitations to the newly added benefit: in order for funds to be transferred tax-free, you must wait 15 years to roll-over funds from your 529 plan to your Roth IRA and you’re not allowed to roll-over any contributions made within the last five years. There is also a maximum of $35,000 that you can transfer into your Roth IRA account. However, with time, $35,000 can increase substantially in a Roth IRA.
The new flexibility of the 529 savings plan is all thanks to Secure 2.0 – a bill signed by the Senate and the House that gives individuals such as part-time workers, small business owners, military personnel, and student loan borrowers better access to retirement benefits.