top of page
Search
  • Writer's pictureChelsei J. Latsch, FPQP®

Leftover 529 Assets? Fund a Roth IRA!


A 529 account is a great, tax-efficient way to save for college expenses. The funds in the account grow tax-free and if they are used for qualified education expenses, withdrawals from a 529 account are exempt from federal and state income taxes. Many states also offer additional tax benefits. Contributions to the Michigan Education Savings Program (MESP) 529 plan are deductible on your state income taxes up to $5,000 for an individual and $10,000 for a married couple filing jointly, this deduction is not just for the parents of the child but extends to anyone who contributes to the MESP and lives in Michigan.


529 to Roth Rollovers


There are a few questions we get all the time…


  • What if the child gets a scholarship?

  • What if there are funds leftover?

  • What if the child doesn’t attend college at all?


Prior to the passing of the SECURE Act 2.0, the options were relatively limited. However, beginning in January 2024, a new provision allows funds remaining in a 529 account to be rolled over tax-free to fund a Roth IRA for the designated beneficiary of the 529 account, if the following qualifications are met.


  • The 529 account must be open for at least 15 years

  • The contributions and associated earnings transferred to the Roth IRA must be in the 529 account for at least 5 years

  • There is a $35,000 lifetime limit per beneficiary for 529 rollovers to a Roth IRA

  • 529 account assets can only be rolled into a Roth IRA in the name of the designated beneficiary on the 529 account


  • The 529 assets must be sent directly to the Roth IRA

  • The Roth IRA contribution is subject to the IRA contribution limit for the applicable tax year (together with all other IRA contributions for the same beneficiary, in the same year)


Things to Consider


There are several additional options for funds remaining in a 529 account including the ability to change the beneficiary of the account to an eligible family member. However, it is important to consider the long-term goal(s) of the account before doing so because changing the 529 account’s beneficiary may restart the 15-year clock and greatly delay the ability to make Roth IRA contributions. It is important to note that the IRS has yet to provide clear guidance regarding many of the specifics of a Roth IRA rollover and further guidance may clarify or change the interpretation of the provision. 

Feel free to contact me with any additional questions.  For further information regarding the MESP 529 plan or to establish an account, visit www.misaves.com.

7 views0 comments

Kommentare


Die Kommentarfunktion wurde abgeschaltet.
bottom of page