Soon You Can Roll Over a 529 to a Roth IRA

While you were busy wrapping presents last week, our federal government was…gasp…working!

Be still my beating heart. They actually work from time to time.

They passed a $1.7 TRILLION appropriations bill last week to keep the government running for another 9 months and a bunch of other stuff. (About 4,000 pages of other stuff.)

One of those pages is good news for parents with pint-sized humans at home who will one day grow up to be pint-drinking college students. 

College savings – the hardest target to hit in all of financial planning.

You need a certain amount on a certain date and you only control one out of 6 variables.

It’s like trying to hit a hole-in-one during a hurricane.

One of the dangers of a 529 Plan is having to pay taxes and penalties if Junior doesn’t use all the money.

The Omnibus Bill helped fix it.

Starting in 2024, Junior can now roll over up to $35,000 into a Roth IRA if he doesn’t use his entire 529.

In 18 years you’ll need about $250,000 per kid for college. So $35,000 gives you a 14% overfunding buffer.

That said, there are lots of caveats:

– You can only roll over the maximum Roth contribution per year ($6500 for 2023). So it’ll take 5 years to move $35,000

– The 529 must have been opened for 15 years.

– Funds added within 5 years cannot be rolled over.

– The Roth IRA must be the beneficiary’s, NOT the owner (aka you)

It’s a small win, but a win nonetheless.

The real question is: 

Which is harder? Wrapping presents or passing 4,000 pages of legislation?

(If you ask me, it’s neck and neck.)