New Strategy Soon Available for 529 Accounts

Many people use 529 accounts as part of their estate and financial plan to support their children’s education. However, it is not always certain whether children will use those funds or not (for example, the funds may not be used if a child does not attend college or receives collegiate scholarships). A recent change in the law makes 529 accounts more flexible.

The Secure 2.0 Act, passed in December 2022, allows taxpayers to distribute funds from a 529 account to a ROTH IRA without taxes or penalties. This option becomes available to taxpayers in 2024.

There are some limitations to this new rule.

  • First, each beneficiary has a lifetime limit of $35,000 that can be moved from a 529 for his or her benefit to a ROTH IRA for his or her benefit.
  • Second, the 529 account must have existed for the beneficiary at least 15 years before funds are transferred to a ROTH IRA for the beneficiary.
  • Third, the 529 account funds contributed or earned within the last 5 years cannot be transferred to a ROTH IRA.
  • Finally, in addition to the cumulative $35,000 per beneficiary limit, the ROTH IRA annual contribution limits apply to transfers from a 529 account and are currently set at $6,500.

If you have any questions about this change in the law, we recommend you discuss them with your estate planning attorney and financial advisor. You may reach out to our estate planning attorneys including Ryan Montgomery, Kara Kalenius Novak, Kaitlyn K. Perez, Allison Int-Hout, and Matthew Hart.

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