It’s always nice to get money stashed in a Roth Individual Retirement Account. These vehicles are the holy grail of tax-wise planning. Once the money is inside a Roth, it grows tax-sheltered, and withdrawals can be taken years later on a tax-free basis, with no requirements to take the money out on a set schedule.

The Secure 2.0 Act enables parents or grandparents to transfer funds from a Section 529 college account to a Roth IRA, avoiding taxes and penalties when withdrawing funds for other purposes, potentially enhancing the attractiveness of 529 plans.

What are 529 plans?

College-focused 529 plans offer tax-sheltered savings and investments for college, with over $400 billion in combined assets. Administrated by states and financial companies, some offer state tax deductions.

Why transfer money from a 529 into a Roth IRA?

Starting in 2024, 529 account owners can transfer unused 529 funds into a Roth IRA for a child, subject to a $35,000 lifetime limit and a maximum annual rollover of $7,000.

Are there timing rules to heed with Roth transfers?

Establishing a 529 account at least 15 years before a rollover is crucial for Roth transfers. Contributions made within five years aren’t tax-free. These transfers count as contributions to the Roth IRA, limiting beneficiaries’ investment limits.