Maximizing Your Savings: The Secure 2.0 Act and Your 529 College Funds

The Secure 2.0 Act
In 2024, The Secure 2.0 Act will usher in significant changes to retirement savings and student loans. As a caring and experienced estate planning attorney, I’m here to guide you through how this new law affects your unused 529 college savings account. Let’s explore the possibilities and ensure your family’s financial future remains secure.

Rolling 529 College Savings into a Roth IRA

A 529 college fund is a valuable tool designed to help families save for their children’s education. With the SECURE 2.0 Act, there’s a new opportunity you should be aware of – the ability to roll over up to $35,000 from your 529 college savings into a Roth IRA, completely tax and penalty-free. Let’s delve into the details:

  1. Annual and Lifetime Contribution Limits:

    The rollover from your 529 account falls under the annual Roth IRA contribution limits. For instance, in 2024, if the limit remains at $6,500 for individuals under 50, you can roll over an amount up to this limit, including yearly contributions withheld from your income. Additionally, there’s a lifetime rollover contribution limit of $35,000.

  2. The 15-Year Rule:

    To qualify for tax and penalty-free rollovers, your 529 plan must have been open for at least 15 years. This clock starts ticking from the day the plan was initially opened, typically by a parent or grandparent. Remember that changing the beneficiary may restart this 15-year clock.

  3. 5-Year Rollover Blackout:

    Funds contributed to your 529 plan within five years of the rollover date cannot be rolled over. Only contributions made outside of this five-year window are eligible. However, you can continue to rollover funds as time goes on and the 5-year window moves farther away from the most recent contributions.

Let’s consider a real-life example to better understand these rules:

  • Imagine your mother opened a 529 account for you in 2001, and you graduated college in 2022. You want to roll over funds into a Roth IRA on January 1, 2024. You can do this because the account has been open for at least 15 years. However, you can’t roll over funds contributed in the 5 years before your rollover date.
  • Another example: Your father opened a 529 college savings account for you in 1998. Since graduation, you and your employer have contributed to your retirement account. You want to roll over the funds into a Roth IRA on January 1, 2024. In this case, all the funds are eligible for a rollover.

An Extra Bonus for Grandparent-Owned Accounts

Students seeking federal financial aid must disclose their financial information on the FAFSA application. Funds in a 529 account owned by a parent are counted as a financial asset, potentially affecting eligibility. However, with the Secure 2.0 Act, there’s a significant change for grandparent-owned accounts:

  • Funds in a 529 account owned by a grandparent or third party will no longer be considered untaxed income of the student. This means the funds won’t hurt the student’s eligibility for federal aid.

Planning for What’s Really Important

While maximizing your savings through the SECURE 2.0 Act is essential, let’s not forget the bigger picture. You likely consider your retirement savings as your most substantial asset, and ensuring its effective management and passing it on are vital for your well-being and your loved ones’ future.

The SECURE 2.0 Act offers exciting opportunities to maximize your savings, particularly by rolling over 529 college funds into a Roth IRA. However, it’s crucial to navigate these changes with the guidance of an expert estate planning attorney.

Our Gift to you

At Aisha Williams Law, we grasp the significance of comprehensive estate planning. We recognize that your retirement savings likely constitute your most substantial asset, and ensuring its effective management and transfer is pivotal for your well-being and your loved ones’ future. Our team of estate planning experts can assist you in crafting a robust strategy for your financial future. We are dedicated to safeguarding your family bonds through meticulous estate planning, driven by our caring and empathetic approach.

Schedule a free 15-minute discovery call to get started on securing your financial future and ensuring everything you own and everyone you love is cared for, no matter what.

 

This article is a service of the Law Office of Aisha M. Williams, APC, serving San Diego, Carlsbad, Escondido, and all of California. We don’t just draft documents. We ensure you make informed decisions about life and death for yourself and the people you love. That’s why we’ll start you with a  Family Wealth Planning Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love.

We created this material solely for educational and informational purposes. It does not serve as ERISA, tax, legal, or investment advice. Should you need legal advice tailored to your specific needs, you must seek such services independently.