SECURE Act 2.0 & 529 Plans

Patrick Cote |

BY: Kate Hennessy, CFP®

A 529 plan is a tax-advantaged account that enables you to save money for education expenses. Do you have unused money in your 529 plan that won’t be needed for education purposes? If so, effective in 2024 you may be able to transfer the money out of the 529 Plan to the beneficiaries’ tax-exempt Roth IRA without incurring any penalties.  This would allow money that was earmarked for education to be used for the beneficiaries’ retirement savings. This 529 plan provision is part of a package of laws named SECURE Act 2.0, that was signed into effect at the end of 2022.

While this increased flexibility and portability of funds is good news for any owner or beneficiary of a 529 plan, there are limitations to the transfer process from a 529 plan to a Roth IRA:

  • The ability to make a transfer is available to anyone with no income limits
  • The beneficiary of the 529 plan must have compensation, such as a part time job to open and fund a Roth IRA
  • The 529 plan must be in existence for 15 years before a transfer may occur
  • Any contributions made to the 529 plan or earnings on the contributions in the last 5 years cannot be transferred
  • There’s a $35,000 lifetime cap on transfers
  • Any transfer to the Roth IRA will count towards the annual Roth IRA contribution limits

If you are the beneficiary of a 529 plan that has unused funds, this new provision of SECURE Act 2.0 will allow you to repurpose those funds as retirement savings.  Please contact us if you have any questions about the new law.