529: The “Swiss Army Knife” of Financial Planning

By BankSource on 6/26/2023

The costs of funding a college education seem to be skyrocketing with the average private school in 2022 costing over $50,000 a year and even in-state public 4-year schools at over $25,000 annually (According to the Education Data Initiative 10-24-22).  One good investment option that financial professionals are helping their clients with is the 529 plan.

What is a 529?

Each state has a specific, self-directed way for parents to save for education. Funds placed in 529’s are not tax deductible but grow tax free and if used for elementary, middle school, high school, college, graduate schools, then the tuition, room, board, computers, and other qualified expenses can be distributed for these purposes tax free! 529 plans vary from state to state and a good website to find out more about the details of each plan is www.savingforcollege.com. 

Of course, most parents want the best education that they can afford for their children but many times there is a tug of war between these expensive education options and the need to also fund 20 or 30 years in retirement.  

Question: What if I have used a 529 and now all my children and grandchildren are educated, and I have leftover 529 money?  

I will be hit with taxes and penalties if I use that money for anything other than educational purposes, right?  

Answer: Yes, until the Secure Act 2.0 was just put into law. 

There is some good news coming out of the 400+ page Secure Act 2.0 enacted on 12-29-22! Money left over inside 529 plans originally designated for education funding can now be “re-purposed”.  Starting in 2024, you may now do what is called a “529 to Roth IRA rollover” and the family member beneficiary can use that Roth IRA for their future retirement income! Not to mention there aren’t any limitations based upon your adjusted gross income as there is with annual Roth IRA contributions. 

Here are the details: 

Starting in 2024 the overfunded 529 owner may take up to $6,500 per year ($7,500 if over age 50) and roll it tax free and penalty free into a Roth IRA in the name of the prior 529 beneficiary. The 529 account must have been open for at least 15 years with the same beneficiary, so the owner must not have made any beneficiary changes over this 15-year period. In addition, money rolled from the 529 into the Roth IRA must have been in that 529 account for at least 5 years.  This concept has a lifetime maximum of $35,000 per beneficiary.  

We’re here to help! 

But the bottom line is that now the 529 can be used early in life and, with heavy funding, may double as a tax-free retirement program. Imagine the power of $35,000 converted to a Roth IRA early in life!  

For more information, please contact us at 877-698-3278 or visit one of your local BOS branches to talk with an advisor today.  

This material does not constitute tax, legal, investment, or accounting advice and Bank of Springfield does not intend for this material to construe such advice. All parties are urged to obtain specific guidance with their attorneys and tax experts prior to implementing any concepts outlined herein. Comments are all based on information this was current at the time we produced this material. 


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