Key Takeaways
- Prior to the SECURE Act 2.0, if a 529 plan beneficiary did not use all of the funds for qualified education expenses (for example, the beneficiary graduated without using all of the funds in the 529), the options for withdrawal were not particularly attractive.
- However, under the new law, those “excess’ funds can be transferred to a Roth IRA for the 529 beneficiary, subject to certain limitations.
- As a result, contributions can now be made to 529 plans with the knowledge that, if not all of the funds are used for the education of the beneficiary, the excess funds can be transferred to a Roth IRA for that beneficiary (and the other options, such as transferring the money to a 529 for a different beneficiary remain available).
The President signed the Consolidated Appropriations Act, which included SECURE Act 2.0, on December 29, 2022.
SECURE Act 2.0 has over 90 provisions, some major and some minor; some mandatory and some optional; some retroactively effective and some that won’t be effective for years to come. One difference between the SECURE Act 2.0 and previous retirement plan laws is that many of 2.0’s provisions are optional…that is, plan sponsors are not required to adopt the provisions, but can if they decide that the change will help their plans and participants. This series discusses the provisions that are likely to be the most impactful, either as options or as required changes.
This article discusses one of the optional provisions that is available beginning next year, 2024. While most of my posts are about retirement plans and related issues, this is more of a financial planning matter, but it does include a retirement aspect, that is, a Roth IRA.
