The passing of Secure Act 2.0 in 2024 introduces a huge benefit for 529 account holders. You can now use those funds to make Roth IRA contributions. This means leftover dollars from education savings can now be redirected towards retirement, offering a smart head start for beneficiaries.
“Since the passing of Secure Act 2.0, there is a new law as of 2024 that anybody with a 529 account can actually then use those funds to make Roth IRA contributions. Now there are definitely some complexities and things that are in place that you want to talk to your financial advisor about before enacting this on your own. But big picture what can happen is you’ve been saving into a 529 all these years, you’ve gone through your education and now there’s leftover dollars.
Typically what would happen happen is you can either roll those over to a new beneficiary or keep it for legacy planning or maybe you just take the distribution and a 10% tax penalty on those funds that aren’t used for education expenses. Well now you have the opportunity to make Roth IRA contributions from the 529 funds. As long as the account has been opened for 15 years, you can then make up to the IRS yearly limit of Roth IRA contributions for the beneficiary. This can be a great tool for parents or grandparents or even kids who have leftover funds. You can start funding Roth IRAs for your beneficiaries that aren’t going to be using 529 funds for education and give them a great head start to retirement saving.”
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