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529 College Planning 2.0  Thumbnail

529 College Planning 2.0

The SECURE 2.0 Act of 2022 has a new provision which could make it easier to preserve the tax-free status of unused funds in 529 plans. Specifically, the provision allows for excess funds to be converted to a Roth IRA*.

This is a significant change for 529 plans, giving everyone an added incentive to save for college without worrying about the beneficiary going to college.

To Summarize:

  • Up to $35,000 of excess 529 funds can be converted to a Roth IRA.
  • The 529 plan beneficiary and Roth IRA owner must be the same person.
  • The 529 plan must have been maintained for a minimum of 15 years.
  • The 529 plan contributions, and earnings on those contributions, cannot be converted within five years of the contribution.
  • The annual amount that can be converted from the 529 plan to the Roth IRA will be included in total yearly IRA contribution limits for the year (i.e. $6,500 in 2023).

What This Means

This new Roth option for 529 plans can be an especially attractive when there’s a chance there will be unused funds left in the 529 account, allowing those funds to continue to grow with the same tax advantages. Another possibility, dependent upon further clarification from the IRS, is that 529 savings plans could become a tax-advantaged savings option for individuals who have no intention of going to school.

Next Steps

Please reach out to your Soundmark advisor with any additional questions. We are here to help determine the next steps for opening, funding, and creating a plan that works for you and your family.

*The IRS will be providing additional clarification at a future date.

This content is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Soundmark Wealth Management, LLC, its advisors and its affiliates do not provide tax or accounting services. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax or accounting advice. Please consult with your tax advisor prior to engaging in any transaction.
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