Rolling Over Your 529 Plan to a Roth IRA: Maximizing Your Savings
Planning for a child’s education is a top priority for many families, and the 529 plan has long been a popular choice for college savings. But what happens if you overfund the account or your child or grandchild doesn’t need all the money for their education? Recent updates to the 529 plan rules offer one possible solution: the ability to roll over a portion of your 529 plan assets into a Roth IRA.
New Opportunities with Roth IRA Rollovers
Recent legislative tied to the SECURE Act 2.0 (passed by Congress at the end of 2022) now offer an opportunity to convert or roll over assets in a 529 plan into a Roth IRA. However, there are a few restrictions to keep in mind:
- 15-Year Rule: The 529 plan must have been maintained for at least 15 years.
- 5-Year Investment Rule: The assets that you want to roll over must have been invested in the account for a minimum of five years.
- Lifetime Limit: The total amount you can roll over into a Roth IRA is capped at $35,000 over a lifetime.
While you can’t roll over all the remaining funds from a 529 plan to a Roth IRA, this new rule provides a valuable option to avoid penalties and make the most of your savings.
Understanding Conversion Limits
It’s essential to be aware of the annual limits when rolling over funds. The rollover amount is tied to the traditional IRA contribution limit, currently set at $7,000 per year in 2024. This means you can only make a maximum of five rollovers throughout the lifetime of the account to reach the $35,000 limit.
The new 529 plan rollover options offer more flexibility and control over your savings and ensure you can make the most of the funds you set aside for your children or grandchildren.
