September 17, 2024
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Did you know that unused 529 plan funds can now fuel your retirement? Thanks to a new law, you can roll over up to $35,000 from a 529 plan into a Roth IRA. This is an incredible opportunity to turn leftover education savings into long-term, tax-free retirement growth.
Let's break down how it works, the eligibility rules, and, most importantly, how you can use this opportunity to improve your financial future.
Key Benefits You Don’t Want to Miss:
- Penalty-Free Rollovers
- Jumpstart Early Retirement
- Transform Unused Savings
- Flexibility for Families
Roth IRA Rollovers: A New Option to Explore
The new law allows you to roll over unused 529 funds into a Roth IRA.
Here’s how it works:
- Your 529 must be open for at least 15 years.
- You may rollover up to $35,000 per beneficiary, as long as the beneficiary earns at least $35,000 in income. The rollover amount must not exceed their total income.
- The rollover must go into a Roth IRA, and the owner of the Roth IRA must be the same person who was the beneficiary of the 529 plan.
Benefits: How This Law Can Work for You
Here's where this new opportunity really shines. You've worked hard to save for your child's education, but what happens when there's extra left over? The new law allows you to capitalize on those unused savings — and here's how.
Turn Leftover Education Savings Into Retirement Security
Up to $35,000 in unused 529 funds can be rolled into a Roth IRA, giving your child a head start on tax-free retirement savings.
Avoid Penalties for Withdrawals
In the past, withdrawing excess 529 funds meant facing penalties. Now, you can roll them over into a Roth IRA without penalties. This way, you ensure your hard-earned savings are still working for your family.
Long-Term Growth for Younger Beneficiaries
The sooner you fund a Roth IRA the more years of tax-free compounding growth. Even a small amount invested now could result in significant gains when they retire.
Roll Over Without Income Limit Restrictions
One significant benefit of this rollover is that income limits do not apply. Even if the beneficiary earns more than the usual income cap for Roth IRA contributions, they can still take advantage of this rollover, providing more tax-effiency.
If a rollover isn’t the right fit for you, there are still options available.
Flexibility for Other Family Members
If your first child doesn’t use all the funds in their 529 plan, you can switch the beneficiary to another family member, including other children or grandchildren. With a broad definition of family, this flexibility allows the funds to benefit multiple generations and cover various educational expenses, including K-12 tuition in some states.
However, one critical question remains ...
Will switching beneficiaries reset the 15-year clock for Roth IRA rollovers?
The IRS has yet to clarify whether the account’s longevity transfers with the beneficiary, but some experts believe credit for the time the account has been open may transfer as well.
Ready to Take Advantage of This New Opportunity?
With the new law in place, you can transform unused education savings into a long-term retirement strategy.
Have questions or need help navigating these changes? At Family Dynasty Advisors, we’re here to help you make the most of these changes. Reach out today to explore how we can guide you in securing your family’s financial future with personalized strategies and expert advice.
