As of Jan. 1, 2024, you can use your 529 plan for a new qualified higher education expense – a 529-to-Roth IRA rollover, which will be tax-free and penalty-free. However, your 529 account must fulfill certain qualifications to do this rollover.
This new benefit also addresses a concern of potential 529 savers of what to do with the 529 funds if their child decides not to pursue a higher education or receives scholarships that more than cover their college costs. With the new Roth IRA rollover option, you can take those 529 education savings and give your children a jump start on their retirement savings.
This following information is also shared in Ohio’s 529 Plan, CollegeAdvantage, Offering Statement And Participation Agreement: The SECURE 2.0 Act of 2022 (the “SECURE 2.0 Act”) was signed into federal law in December 2022. In addition to a number of significant retirement savings related enhancements, the SECURE 2.0 Act revises Section 529 of the Internal Revenue Code (“IRC”). Beginning January 1, 2024, tax-free and penalty-free rollovers will be permitted from a 529 plan account to a Roth IRA, subject to the certain conditions (“529-to-Roth Rollovers”).
The conditions include, but are not limited to, the following:
• The 529 plan account must have been maintained for the 15-year period ending on the date of the 529-to-Roth Rollover.
• The amount of the 529-to-Roth IRA Rollover may not exceed the aggregate amount contributed to the 529 program account (and earnings attributable thereto) before the 5-year period ending on the date of such rollover.
• The aggregate amount of 529-to-Roth IRA Rollovers for the same designated beneficiary may not exceed $35,000.
• The 529-to-Roth IRA Rollover must be made in a direct trustee-to-trustee transfer to a Roth IRA maintained for the benefit of the same designated beneficiary of the 529 program account (not the account owner – if different).
• Each year, the 529-to-Roth IRA Rollover will be subject to annual IRA contribution limits, minus all other IRA contributions made during the year for the same designated beneficiary. In addition, such rollovers may not exceed the amount of compensation the designated beneficiary earned during the year.
• Roth IRA income limitations are waived for 529 plan rollovers to Roth IRAs.
The above information regarding 529-to-Roth Rollovers is based on a good faith interpretation of the newly enacted federal legislation. The IRS may issue additional guidance that may impact 529 plan account rollovers to Roth IRAs, including the above referenced conditions. In that event, we will share the latest information.
Account Owners and Beneficiaries should each consult a financial professional or tax advisor regarding the applicability of these rollovers to their personal situations. You are responsible for determining the eligibility of a 529 plan to Roth IRA rollover including tracking and documenting the length of time the 529 plan account has been opened and the amount of assets in your 529 plan account eligible to be rolled into a Roth IRA. To request a rollover to a Roth IRA, please submit the appropriate form to the CollegeAdvantage Direct 529 Plan. The provision is effective with respect to 529-to-Roth Rollovers made after December 31, 2023.
This newest benefit further expands the flexibility of a 529 account. The 529-to-Roth IRA rollover joins the long list of other tax-free qualified higher education expenses such as tuition; room and board; mandatory fees; computer equipment and related technology as well as internet services; books, supplies and equipment related to enrollment and class schedule; certain expenses for a special-needs student; qualified apprenticeships costs; payment of the principal and interest on qualified education loans for the 529 beneficiary or the beneficiary’s siblings. The loan repayment provision applies to repayments up to the lifetime amount of $10,000 per beneficiary; and payment of K-12 tuition up to $10,000 per student, per year, for enrollment at public, private, or religious elementary or secondary school.
If you have any additional questions, please reach out to the Customer Service Representatives of Ohio’s 529 Plan, CollegeAdvantage, at 1-800-AFFORD-IT (233-6734) 8:30 a.m.-6 p.m. EST Monday-Friday.
Since 1989, Ohio 529 CollegeAdvantage has been helping families across the nation save for their children’s education after high school. Ohio’s 529 Plan covers qualified costs at any four-year college or university, two-year community college, trade or vocational school, apprenticeship approved by the U.S. Labor Department, or certificate program nationwide that accepts federal financial aid. Learn, plan, and start with as little as $25 at CollegeAdvantage.com.
