529 Plans More Attractive with SECURE Act 2.0

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The Secure Act 2.0 makes 529 plans even more attractive to parents and grandparents.

It’s hard to know how much to save for a college education and the new law addresses the potential tax trap of overfunding a 529. Before the law change, excess withdrawals not used to pay for qualified education expenses could be penalized and subject to federal and state income taxes.

529 plans have been around since 1996, funding many college educations for our client’s children and grandchildren. I am paying for my oldest son’s college with his 529. They are attractive because of their ability to have tax free growth when used for qualifying higher education expenses.

Updates for Unused 529 Plan Dollars in 2024

Starting in 2024, some unused 529 plan dollars can roll over into a Roth IRA for the beneficiary. The $6,500 per year maximum Roth contribution limits apply.  Plus, there are other rules. The 529 Plan must have been established at least 15 years before any conversion.  Also, there is a maximum of $35,000 total that can be converted.  The amount of the 529 plan rollover to Roth IRA cannot exceed the 529 Plan beneficiary’s earned income for that tax year.

Sometimes it is better to have the 529 Plan owner be the grandparent and not the parent, but be careful not to reduce the amount of financial aid the student might qualify for.

Leaving a Legacy

This law makes 529 Plans very attractive for grandparents who want to leave a legacy for their grandchild.

If you are a parent or grandparent and interested in saving for the education of your child or grandchild, contact me to discuss how the 529 Plan might be a terrific option.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Please consult with your tax advisor before investing. The content provided is not legal advice or provide a tax opinion.

Next Steps

Financial Success Doesn’t Happen by Chance. 

Contact lead advisor Chris Robinson, ChFC, at our office, 940-464-4104, to schedule a time to discuss your current 529 or other IRA questions. We’re happy to help.

RFG Wealth Advisory in Argyle, Texas, is an independent, fee-only Registered Investment Advisor.  We always puts our client’s interests first. We have a transparent, simple fee structure that’s easy to understand. Call us today!

 

This document is a summary only and not meant to represent all provisions within the SECURE Act.

Investment advice is offered through RFG Wealth Advisory, a Registered Investment Advisor.


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Investment advice offered through RFG Wealth Advisory, a registered Investment advisor. FINRA/SIPC.


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