Starting in 2024, a new opportunity emerges for families of college graduates with leftover funds in their 529 plans. New rules that emerged from Secure Act 2.0 pave the way for converting up to $35,000 in unused 529 plan assets to a Roth IRA, provided the following conditions are met:
Conditions for Conversion:
- The 529 plan must have been in existence for 15 years.
- Funds need to reside in the 529 for five years before any transfer.
- Transfers must be directed to an IRA for the same beneficiary as the 529.
Conversion Limitations:
- The 529 to Roth IRA conversion limit aligns with the annual Roth IRA contribution limit (set at $6,500 in 2023).
- A lifetime cap of $35,000 per beneficiary is in place.
Important Note:
A 529 to Roth IRA conversion can replace an annual Roth IRA contribution, but the same beneficiary can’t do both a conversion and a regular Roth contribution.
