SECURE Act 2.0 and 529 Plans

A change to U.S. law at the end of 2022, SECURE Act 2.0, provides more flexibility for 529 plan assets. Starting in 2024, pending certain conditions, individuals can roll a 529 education savings plan into a Roth IRA to jumpstart the retirement of their beneficiaries.

Special considerations and limitations to be aware of

529 plans must be 15 years old

529 accounts must have been maintained for a minimum of 15 years to be eligible for transfer.

This would benefit the beneficiary, not the 529 account holders

The funds from the 529 plan must be moved directly to a Roth IRA of the 529 plan beneficiary. If you created a 529 account for a loved one and have excess funds in the account, you could technically change the beneficiary to yourself, but based on the language in SECURE Act 2.0, this may likely reset the 15-year clock. This means you would need to wait 15 years before you could transfer any 529 plan funds into your Roth IRA. Government agencies still need to confirm whether the clock will be restarted or not, so there may be unforeseen consequences of initiating a beneficiary change.

Lifetime maximum

The 529 transfer is subject to a lifetime maximum of $35,000 from a 529 plan account to a Roth IRA.

Roth IRA contribution limits still apply

For 2023, those limits are $6,500 per year if the beneficiary is under 50 and $7,500 per year for those over 50. These limits are subject to change every year.

Roth IRA income limits don’t apply but earned income requirements do

The Roth IRA income thresholds will not apply to these contributions; however, the beneficiary will need to have earned income equal to or more than the contribution in order to move 529 funds into the Roth.

There are still unknowns

SECURE Act 2.0 is still new, and we expect lawmakers to share more detailed guidelines prior to when the law goes into effect in 2024. Individual states may also have their own stipulations regarding rolling over excess 529 plan funds to a Roth IRA. If a state chooses not to conform, then the transfer potentially may be subject to state income tax.

Retirement rules can change without notice, and there is no guarantee that the treatment of specific rules will remain the same. This article intends to give you an overview of the limitations and considerations of updated 529 conditions through the SECURE Act 2.0. It's not intended as a substitute for real-life advice. Please contact us with any questions.

^{1. https://www.ameriprise.com/financial-news-research/insights/new-529-plan-rules/}

^{This is not a recommendation and is not intended to be taken as a recommendation. This material was prepared for general distribution and is not directed to a specific individual.}

^{LPWM LLC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisers.}