SECURE 2.0 Act: What it Means for 529 Plan Funds

Americans saving in a 529 college savings plan will be able to roll over unused plan funds into the beneficiary’s Roth IRA tax- and penalty-free starting in 2024, due to the recently signed Secure Act 2.0. These plans are popular among families looking to save for their children’s education tax-free – including many education-related withdrawals, such as tuition or books required for courses.

The recent changes within the Secure Act 2.0 are generally meant to help Americans save for retirement more easily, but the update surrounding 529 plans opens options for your children in terms of what they are able to do with their 529 funds. For parents worried about overfunding their child’s 529 account(s), this update provides the opportunity for your children to still benefit down the line. If all 529 funds are not used toward education, they can be redirected to retirement. Before recent changes, this type of withdrawal would have been considered a non-qualified withdrawal and penalties would have been applied. With the new SECURE Act 2.0 benefits, 529 college savings plans bring the possibility to roll over excess funds into a Roth IRA for your child, providing the best of both worlds to a certain extent.

Your child’s 529 plan will need to have been open for at least 15 years to qualify for the Roth IRA conversion, and beneficiaries will be able to roll over up to $35,000 over their lifetime.

At Method, we’re here to help with navigating these Secure Act 2.0 changes and maximizing the adjustments meant to help you and your family save. Ask us to learn more about the importance of working with a financial planner to understand how to fund both retirement and education goals for your family.

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