New federal law allows rollover of unused 529 funds into retirement account

InvestigateTV - If you are one of the almost 16 million people who have funded a 529 college savings account, you could soon be able to roll any leftover money into a retirement plan. 

The SECURE 2.0 Act, which became law in December 2022, changed the 529 account rules to allow up to $35,000 to be rolled over into a Roth IRA. The change will begin in 2024.

However, Robert Farrington, founder of The College Investor, said the rules are very strict. 

“It is only for the beneficiary, not the account owner. However, you can change the beneficiary on these accounts,” explained Farrington. “So, let’s say you have more than $35,000 in the 529 plan. Then you change the beneficiary, and you can put it into another child, or the beneficiary could actually be yourself.”  

It’s important to note that you still have to abide by the Roth contribution limits, which are $6,500-$7,500 per year. So, it might take five or six years to move all the money into the account.  

Additionally, you can only move contributions that have been in an account for more than five years.  

Farrington cautioned that every state is different and has their own 529 plan rules.  

“So even though Congress now allows the roll over from a 529 plan to a Roth IRA, your state might not,” he explained. “And I think people need to remember that. Plus, every state is going to have to pass new rules to make this comply with their existing rules.” 

You can review your state’s 529 plan here.

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