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What to Know: New 529 to Roth Transfer in 2024
Nov 14 2024 18:38
The new rule allowing 529 plan beneficiaries to transfer funds to a Roth IRA starting in 2024 is significant for families planning for both education and retirement. This change provides an additional layer of financial flexibility that can be highly beneficial.
Background and Key Changes:
The SECURE Act 2.0 has introduced several important changes, one of which is the 529 to Roth IRA transfer starting in 2024. There is a great deal of excitement surrounding this change, as it opens up new opportunities for leveraging saved educational funds. However, there are specific criteria that must be met for a successful rollover.
Eligibility Criteria:
One important criterion to note is the $35,000 lifetime limit on rollovers from 529 plans to Roth IRAs for beneficiaries. Additionally, these rollovers are subject to Roth IRA annual contribution limits. Eligible 529 accounts must be more than 15 years old, and any changes to the beneficiary reset this 15-year clock.
Potential Complications and Solutions:
Complications can arise if a parent or guardian had previously renamed the beneficiary to another child before this 2024 change. The likely solution in such cases is instead of changing the beneficiary, to request a rollover to another child’s existing 529 account to maintain the original account's 15-year lifespan. However, it is important to note that this can only be done once every 12 months.
Strategic Planning for Families:
The traditional approach has been transferring unused funds between multiple 529 accounts for college savings. However, under the new rule in 2024, parents might consider allowing their children to use the Roth IRA rollover option to support their retirement or other long-term financial goals. This strategy could prove advantageous for families seeking to maximize their savings and investment returns.
Understanding the new 529 to Roth transfer rules is essential for families aiming to optimize their financial planning for both education and retirement. Consulting with a financial advisor can help navigate these changes and utilize them to your advantage.
Stay informed about further updates to the SECURE Act 2.0 and other financial planning opportunities. Subscribe to our blog for more insights and tips on maximizing your savings and investments.
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