Can You Roll a 529 Into Something Else?
Many parents fund 529 plans in order to assist their children in paying for college expenses, yet sometimes, those funds go unused.
New rules permit you to transfer unused 529 plan money directly to other family members without incurring taxes or penalties, including spouses, first cousins, descendants and siblings.
Change of Beneficiaries If You Move States That Offer Tax Breaks for 529 Contributions.
What is a 529 plan?
A 529 plan is an education savings account designed to provide tax-advantaged funding of higher-education expenses. Administered by states, these accounts contain a mix of mutual funds and assets designed to cover various education costs. As well as offering federal and state-level tax breaks, 529 plans often come equipped with age-based investment options that gradually shift towards more conservative funds as their beneficiaries approach college age.
Parents, grandparents and other family members can open a 529 plan in behalf of eligible children or adults and contribute up to the state limit per beneficiary. Unlike a Roth IRA, funds in the plan can only be used for qualifying education expenses such as tuition fees, room and board expenses, books supplies equipment. It can even be used at graduate school trade school K-12 private schools. Distributions from 529s generally tax-free with income taxes and 10% penalty possibly applied if used nonqualify expenses such as non-qualified tuition expenses such as nonqualified expenses such as nonqualified expenses such as nonqualified educational expenses such as nonqualified expenses such as nonqualified education expenses that occur before distributions take place from 529s.
Can I roll my 529 into a Roth IRA?
Federal law permits an annual maximum rollover from 529 accounts into Roth IRAs of $35,000; however, some key restrictions exist: prepaid 529s may restrict funds being transferred into a Roth account and state income taxes or “clawbacks” could apply from receiving account providers.
Changing the beneficiary name or changing its ownership to another family member such as their sibling or spouse requires waiting 15 years before making a 529-to-Roth transfer again, with amounts eligible limited by that year’s IRA contribution limit (currently $7,000; increasing to $8000 for beneficiaries over 50).
Beginning in 2024, a provision of the SECURE Act will enable you to roll any unutilized 529 assets–up to an annual lifetime limit of $35,000–into a Roth IRA without incurring a 10% penalty or creating taxable income. This may help ease some concerns associated with using 529s for college savings in case they don’t end up attending or chooses less expensive schools.
Can I roll my 529 into a brokerage account?
While brokerage accounts may provide tax benefits when saving for college, 529 plans provide greater tax advantages while being easier to manage. Many plans do not charge enrollment fees or only charge low annual fees that often fall below one percent of assets per year.
Additionally, most 529 plan investments are passively managed and invest in mutual funds that correspond to your child’s age group – this may help lower investment costs while potentially providing better results than active portfolio management strategies.
Finally, 529 savings plans are portable and you can change beneficiaries at any time – this may come in handy if the original beneficiary decides not to pursue higher education, or you wish to transfer it to someone else within your family. In 2024 thanks to Secure Act 2.0 beneficiaries will also be able to roll unused 529 assets into Roth IRA accounts without penalty (though certain criteria must be met first). If you’re considering transferring your 529, take a look at our state-by-state guide for more details on available options available options within your state!
Can I roll my 529 into a 401(k) plan?
A 529 plan offers parents who want to invest in their child’s education several advantages that make it a smart investment option. Contributions are tax free and withdrawals may be used for qualified education expenses without incurring income taxes or 10% penalty fees. Furthermore, its average return surpasses that of traditional brokerage or savings accounts.
Recently, however, 529 plans had one major drawback: If your child doesn’t attend college or receives a large scholarship and you withdraw the funds early without incurring penalties from withdrawing them, according to financial planner Carter McClung. That changed with passage of Secure 2.0 Act which now permits rollover of unused 529 assets into Roth IRA accounts.
To do so, simply change the beneficiary of your 529 account to an eligible family member – such as spouses, first cousins, descendants and siblings. Keep in mind there may be restrictions; up to $35,000 of conversion can only be converted within 15 years from opening it.
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