For years, 529 college savings plans have been one of the best tools for saving for education expenses, offering tax-free growth and withdrawals when used for qualified educational expenses. However, many people are unaware of how flexible these accounts have become with recent law changes. If you thought 529 plans were only for college tuition, it’s time to take another look.
529-to-Roth IRA Rollovers: A Game-Changer Starting in 2024
One of the biggest updates to 529 plans is the ability to roll over funds into a Roth IRA for the account’s beneficiary. This change provides a new level of flexibility for families worried about overfunding a 529 account or children deciding not to pursue traditional higher education.
Here’s how the
529-to-Roth IRA rollover works under the new IRS rules:
- Lifetime Limit: Up to $35,000 can be rolled over per beneficiary.
- Account Age Requirement: The 529 plan must have been open for at least 15 years before any rollovers.
- Contributions Waiting Period: Contributions (and earnings on those contributions) made in the last five years cannot be rolled over.
- Annual Roth Contribution Limits Apply: The amount rolled over in any given year cannot exceed the annual Roth IRA contribution limit ($7,000 in 2024, or $8,000 if age 50+).
- Beneficiary Must Have Earned Income: The rollover amount cannot exceed the beneficiary’s earned income for the year.
- Must Go to Beneficiary’s Roth IRA: The 529 plan beneficiary must be the same person who owns the Roth IRA.
Other Recent Enhancements to 529 Plans
529 plans have become more versatile over the years, and recent changes have made them an even more attractive savings vehicle:
1. Expanded Use for K-12 Education
Families can now use up to
$10,000 per year per student from a 529 plan to pay for K-12 tuition at private and religious schools.
2. Student Loan Repayment
529 plans can be used to pay up to
$10,000 in student loan debt for a plan beneficiary or their siblings.
3. Vocational and Apprenticeship Programs
529 funds can now cover tuition, fees, books, and supplies for
registered apprenticeship programs, expanding options beyond traditional college.
Accumulating Wealth Phase – 529’s as a Special Purpose Account
At Strategic Income Group, we emphasize the Three Phases of Wealth, and 529 plans fit perfectly into the Accumulating Wealth Phase. This phase is all about setting up Special Purpose Accounts designed for a specific financial event in the future. A 529 plan is an excellent example of this approach, ensuring that education costs—whether for college, vocational training, or even future retirement savings—are covered in a tax-efficient way.
By integrating a 529 plan into your financial strategy, you are proactively preparing for future expenses while benefiting from tax advantages. Just like other Special Purpose Accounts used for major life events—such as a home purchase, wedding, or business investment—a 529 plan allows you to earmark funds for education while maintaining flexibility for the future.
Why These Changes Matter
The new rules make 529 plans a powerful multi-purpose financial tool. Families no longer have to worry about overfunding a 529 plan and having unused funds trapped in an account. Instead, they can:
- Confidently save for education without the risk of losing tax benefits.
- Use excess funds for retirement savings through a Roth IRA rollover.
- Cover a broader range of educational and career paths, including K-12 tuition and apprenticeships.
- Even help with student loan repayment if needed.
Should You Consider a 529 Plan?
If you’re planning for your child’s or grandchild’s education, or even thinking about long-term wealth strategies, a
529 plan remains one of the best tax-advantaged savings vehicles available. The latest changes only add to its flexibility and usefulness.
At Strategic Income Group, we specialize in helping families integrate tax-efficient strategies like 529 plans into their overall financial plan. If you’d like to learn more about how a 529 plan could work for you—or how to maximize its new benefits—schedule a consultation with us today.
