Introduction
The SECURE 2.0 Act, recently passed by the US Congress, has brought about a significant overhaul of retirement savings. However, what surprised many financial experts is the provision allowing savers to roll over unused funds from their children’s 529 college-savings plans into a Roth IRA. This change could benefit many families who have leftover funds from college expenses. In this article, we will explore how the SECURE 2.0 Act is changing college savings plans and how families can take advantage of this provision.
What is the SECURE 2.0 Act?
The SECURE 2.0 Act is a piece of legislation aimed at helping Americans save more for retirement. The act builds on the SECURE Act, passed in 2019, and contains several provisions that will impact retirement savings plans. One of the most significant changes is the provision that allows savers to roll over unused funds from their children’s 529 college-savings plans into a Roth IRA.
Understanding 529 College-Savings Plans
529 college-savings plans are investment accounts that allow families to save for their children’s education. These plans offer several tax benefits, including tax-free withdrawals for qualified education expenses. However, if there are leftover funds in a 529 plan after the beneficiary completes their education, the funds can be subject to taxes and penalties if not used for qualified expenses.
How the SECURE 2.0 Act Changes 529 Plans
Under the SECURE 2.0 Act, savers can now roll over unused funds from their children’s 529 college-savings plans into a Roth IRA. This change could be significant for families who have leftover funds in their 529 plans after their children complete their education. A Roth IRA is a retirement savings account that allows for tax-free withdrawals in retirement, making it an attractive option for many savers.
How Families Can Benefit from the New Provision
If you have leftover funds in your child’s 529 plan, you can now roll over those funds into a Roth IRA. Doing so can offer several benefits, including tax-free growth and withdrawals in retirement. However, it’s essential to understand the rules and limitations of this provision.
First, the rollover amount cannot exceed the beneficiary’s lifetime limit for Roth IRA contributions. Additionally, the funds must be used for retirement purposes and cannot be withdrawn penalty-free until the account owner reaches age 59 ½. However, if the account owner experiences certain hardships or disabilities, they may be able to withdraw the funds penalty-free.
Conclusion
The SECURE 2.0 Act has brought about several significant changes to retirement savings plans, including the provision that allows savers to roll over unused funds from their children’s 529 college-savings plans into a Roth IRA. Families with leftover funds in their 529 plans after their children complete their education can benefit from this provision by taking advantage of tax-free growth and withdrawals in retirement. However, it’s essential to understand the rules and limitations of this provision before making any rollovers. By doing so, families can make the most of their savings and better prepare for retirement.
The SECURE 2.0 Act allows savers to roll over unused funds from their children’s 529 college-savings plans into a Roth IRA. Learn how families can take advantage of this provision and benefit from tax-free growth and withdrawals in retirement.
