New 529 Plan Rollovers | SECURE Act 2.0 | OH IN KY

New Options for 529 Plans Mean More Flexibility for Investors and Beneficiaries

Published on by Beth Germann in Wealth Management

New Options for 529 Plans Mean More Flexibility for Investors and Beneficiaries
  Reading time 3 minutes

529 plans have long been a great option for efficiently saving for college expenses – but when the SECURE 2.0 Act was passed in December 2022, they got even better thanks to a new option for 529 plan rollovers. The new provision allows for tax-free and penalty-free rollovers from a 529 plan to a Roth IRA. For young investors with a longer time horizon until retirement for investment growth, the benefit of a Roth account can be a significant building block of their planning.

The new rules

529 plans are typically funded to assist with saving for college expenses, but this new provision broadens the use of these funds – for example, an over-funded 529 plan could now be rolled over into a Roth IRA, up to a maximum rollover of $35,000. The provision, which goes into effect in 2024, also comes with other stipulations:

  • The beneficiary of the 529 will be the owner of the Roth IRA
  • Rollover amounts will be subject to annual Roth contribution limits ($6,500 in 2023) and earned income limits
  • The 529 plan must have been opened for 15 years before the rollover
  • Contributions made to the 529 in the last 5 years are not eligible

Indiana sweetens the pot

529 plans are a great way for families to save for higher education, whether it’s funded by parents, grandparents, other family members, or a combination thereof.  As an added benefit, many states, including Indiana and Ohio, offer state income tax deductions or credits for contributions made.  And for residents of Indiana, the benefit just got even better.

Beginning in 2023, the Indiana 20% credit maximum has increased from $1,000 to $1,500 annually.  To receive the maximum benefit of this credit, those funding the plan should make a contribution of $7,500 – and the earlier in a child’s life, the better. That way the funds can have the benefit of growing tax-free for a longer period of time until draws are made to pay for education – and with college costs continually rising, maximizing the benefit (and potential later rollover) are key.

Go beyond the numbers

If you’ve got questions about the new provision and how it might affect your planning and your overall tax situation, contact us for a free consultation with one of our top wealth management pros. You may also be interested in value investing, real-world success stories, or how tax-managed accounts or a cash balance plan might fit into your retirement planning as a business owner. As always, the Barnes Dennig Wealth Management team is here to help. Get in touch, and let’s start building a brighter future, together.


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