New 529 Rule Starting in 2024

    3 minutes
    Rollover unused funds into a beneficiary’s retirement account
    Thanks to a newly signed federal law, investing in a 529 plan has just become a more compelling option for parents looking to save for their children’s futures.

    Currently, money in a 529 plan must be used toward qualified education expenses or else be withdrawn and charged a 10% penalty and federal income tax on the earnings. Starting in 2024, individuals will be allowed to rollover unused 529 funds into a beneficiary’s Roth individual retirement account. This change will eliminate previous penalties incurred when withdrawing that money if your child ends up using it.

    What you need to know:
    • A max of $35,000 can be rolled over from a 529 plan to a beneficiary’s Roth IRA.

    • Annual Roth IRA contribution limits apply to rollovers. In 2023, the limit is $6,500, which means it would take six years to convert $35,000 from a 529 plan to a Roth IRA.

    • Conversions can only be made to a beneficiary’s Roth IRA; a parent saving with a 529 plan in a child's name cannot convert unused funds back into their own retirement account.

    • Rollovers are not allowed until a 529 account has been open for at least 15 years.

    • Funds you convert from 529 plans to Roth IRAs must have been in the account for at least five years.

    We understand the importance of saving for your child’s future and want to make sure that you have all the information you need to make informed decisions about your finances. For personalized guidance with your financial planning, visit your neighborhood Financial Health Center.