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Investing in a 529

There were many changes to investing laws in the omnibus spending bill passed on December 29, 2022, that included the Secure Act 2.0. One of the most significant changes to educational investment accounts was passed for 529 accounts. Starting in 2024, account holders who have had a 529 with leftover or unused funds can roll over funds from their 529 to a Roth IRA.

Qualifications and Considerations

If you’re asking yourself if this is something to pursue when investing in a 529 for your children, below outlines the areas to review to help you feel more confident.

  • The account must be set up for at least 15 years before you can utilize this feature. If you’re looking at setting up an account for your kids and you don’t do it until ten years old or later, the child will not be able to take advantage of this until their mid-to-late 20s. It has not been determined if you change the beneficiary of the 529 if that resets the 15-year clock.

  • There is a lifetime cap of $35,000 per person/account owner. So intentionally overfunding a 529 is limited. If there are leftover funds after overfunding, you can always transfer the account to another family member.

  • The 529 beneficiary must have earned income to be eligible to roll over funds from a 529 to a Roth IRA. This is one of several qualifications needing to be clarified in the bill.

  • Rollovers are subject to the annual Roth IRA contribution limits (less if you’ve made direct contributions).

    • Example: You made a $1,000 contribution in 2024. The Roth IRA maximum is $6,500; you would only be able to roll over $5,500, given that you meet the other qualifications.

  • You cannot transfer contributions and earnings made in the last five years.

  • There are no income limits on completing the rollover like there are for Roth IRA contributions.

Choosing the right school

School choice matters even if you have the funds to cover the total cost of education. Rather than choosing a public school at $25,000 per year for a 4-year undergraduate degree and having to come out of pocket an additional $40,000, a family could consider community college. If community college costs $10,000 annually for four years and you have $60,000 in your 529, you could roll over the remaining $20,000 every year until exhausted into the beneficiary’s IRA. This can put even more importance on the school choice for parents and their children.

Whether this is something you should take advantage of depends on your personal situation. If you are looking for guidance around education planning and saving for yourself or your children, set up a meeting today with your Whitaker-Myers advisor to help you achieve your financial goals and objectives.


January 19, 2023

Andrew Young

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