facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
%POST_TITLE% Thumbnail

SECURE Act 2.0: 529 Rollovers Email

529 accounts are getting a lot more powerful with the recent SECURE Act 2.0 legislation that went into effect on January 1st.

Here’s what you need to know:

Typically, 529 money is dedicated to education expenses like college tuition. Taking money out for other "non-qualified" purposes generally triggers penalties and taxes.

Meaning that if your kid didn't go to a qualified K-12 or college or didn't use up the funds because they received a scholarship, you didn't have a lot of choices for the money in the account that didn't come with penalties.

Sure, you could change the beneficiary so the money went to pay for another child's education, but that was about it.

Here's some good news:1

Starting in 2024, 529 funds that don't get used for education will be able to roll over to the beneficiary's Roth IRA, free of taxes and penalties.

But — and there's usually a but — there are some caveats and limitations we need to keep in mind:

  • Rollovers will count as contributions and can't exceed the annual IRA contribution limit ($6,500 in 2023)
  • Rollovers can only be made to the beneficiary's Roth IRA (i.e. the child's) and not the account owner's
  • The 529 account must have been open for at least 15 years (and possibly be in the same beneficiary's name for that period)
  • You can't roll over contributions (or their earnings) made in the last five years
  • There’s a $35,000 lifetime cap on rollovers

Are 529 rollovers a big deal?

I think so. Simply because it opens the door to doing much more with your child's education savings than simply paying for college.

We have been hesitant to suggest 529 plans in the past because of the restrictions placed on the funds. Previously, if your child or grandchild received a scholarship, decided to go to a trade school or the military, there was a penalty to use the unspent funds on anything other than educational expenses. However, the ability to now roll the funds into a Roth provides an added benefit that could serve them well into retirement. 

Are there other saving options to start for my child/grandchild?

UTMA and UGMA accounts are custodial accounts that allow you to save and transfer financial assets to a minor without establishing a trust. Both are held in the name of the minor, but controlled by a parent or other relative until the child reaches adulthood (the age of majority in your state). Once the child reaches majority age, the funds are turned over to the child but this transfer warrants a discussion during the set up of the account.

UTMA stands for Uniform Transfers to Minors Act, and UGMA stands for Uniform Gifts to Minors Act.

Contributions are made with after-tax dollars. You can contribute up to $17,000 annually without incurring a gift tax ($34,000 per married couple). The first $1,150 of a child’s unearned income is tax-free. The next $1,150 is taxed at the child’s rate. Anything over that is taxed as the parent’s income. 

However, UGMA and UTMA accounts provide more flexibility in how the funds can be used compared to a 529 plan. When it comes to using the funds in a 529 plan, to avoid a penalty, you’ll need to use it for specific educational expenses, including tuition, books, supplies and a computer. 

While your child is still a minor, you can use the funds in a UTMA or UGMA account to pay for expenses that benefit the child, such as clothes for school and summer programs. The funds can also be used for things like: braces, first car, college, sorority, wedding, etc.

What can you do with this information now?

If you have children, or grandchildren, and are interested in setting up an account for their future please reach out to our office and we can discuss which options might be best for you!

P.S. Have questions about 529 accounts or SECURE Act 2.0 changes? Hit “reply” and let me know. We’ll schedule a time to chat.


1. https://www.cnbc.com/2022/12/23/tax-free-rollovers-from-529-plans-to-roth-iras-may-be-allowed-in-2024.html

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax professional.


Ironhorse Wealth Management is an independent firm with securities offered through Saxony Securities, Inc. member FINRA/SIPC and investment advisory services offered through Plan Group Financial, Inc., an SEC registered investment advisor. Ironhorse Wealth Management, Plan Group Financial, Inc. and Saxony Securities, Inc. are separate entities.

Accounting & legal services offered through Steven D. Kaestner P.C.