A New Option for 529 Plan Owners

February 3, 2023

A 529 plan is a tax-advantaged savings plan designed to help pay for educational expenses. When a parent or grandparent opens a 529 plan, they ensure that their child has the financial support to reach their educational goals. With about 42% of Americans over age 25 holding a college degree, it may seem like a no-brainer to take advantage of the long-term tax savings of investing in a 529 plan.

But what can you do if the beneficiary of the plan ultimately decides to pursue goals that do NOT require additional education? Are the funds “stuck” in the 529 plan?

In the past, using withdrawals from a 529 plan for anything other than qualified educational expenses would result in taxes and usually penalties. Account owners could leave the funds in the account in case the beneficiary changed their mind in the long term. They could decide to change the beneficiary of the account to another person, such as a niece or nephew. However, that may not be a desirable option for many families.

The recently enacted SECURE 2.0 Act provides an additional option for moving funds from a 529 plan that is no longer needed. Starting in 2023, owners of certain 529 Plans can transfer the balance to a Roth IRA. A Roth IRA is a special individual retirement account (IRA) in which withdrawals are tax-free.

The conversion must comply with the following guidelines:

  • 529 plan account must have been in effect for at least 15 years.
  • The amount transferred into the Roth IRA may not exceed the total of the contributions made to the 529 plan during the past five years.
  • The amount transferred into the Roth IRA each year is limited to the amount allowed for Roth IRA contributions that year. (In 2023, the IRA limit is $6,500, but we do not know the limit for 2024 as of the date of publication).
  • The maximum amount of all transfers is limited to $35,000.

 

While 529 savings plans can be beneficial for many families, investors who ultimately decide that they will not use their balance for qualified educational expenses now have another option for using the funds without incurring harsh penalties. Because of the complex rules surrounding such a conversion, we also recommend speaking with a knowledgeable financial advisor. If we can assist you with a referral, call our office at 480-294-4967.

K&R Strategic Partners, LLC
5.0
Based on 69 reviews
powered by Google
Luke Careccia
Luke Careccia
18:03 03 Oct 24
Place is awesome!! Chad is great as well. Really happy with them.
Brent Hamman
Brent Hamman
19:37 15 Jul 24
Extraordinary service and accountability. Great communication and Keith, in particular, is an absolute expert.
Mckall Evans
Mckall Evans
14:45 20 Jun 24
The best accounting crew! They always take care of everything and make it easy on those of us that don’t understand a lot about taxes! Ha! Love everyone I have worked with here!
Sean Carter
Sean Carter
15:22 18 Jun 24
The team here is always awesome, they know their stuff, care, and are experts.
Dylan Hernandez
Dylan Hernandez
15:10 23 Apr 24
I really cannot say good enough things about this company and all of the people who work there. They have helped me so much from taxes, to accounting, to generally helping with the basic functions of my business. Very happy I was referred here and I have referred a ton of people to them over the past two years. Thanks team!
Jonathan Schaupp
Jonathan Schaupp
14:11 25 Mar 24
They provide great support for my small business
ABIGAIL ROBINSON
ABIGAIL ROBINSON
16:37 04 Mar 24
A friend pointed me in the direction of K&R Strategic Partners, and I've been thoroughly impressed. Transitioning to a new accounting firm this year was no small feat for us, but K&R handled it seamlessly, showing no hesitation. They efficiently took control of our account, demonstrating both ease and proficiency in their approach. Our tax manager, Garron, excels in communication and welcomed our account with enthusiasm. We intend to keep spreading the word about K&R's exceptional service to our friends, family, and coworkers because they truly stand out. Remarkably, we moved from facing a significant tax bill to receiving a refund this year! A huge shoutout to K&R! They definitely earn a five-star rating from us!
Nathan Porter
Nathan Porter
14:29 06 Sep 23
I have been using K&R Tax Accounting Services LLC for nearly a decade. As a business owner, it has been one of the best decisions I have ever made. They are extremely professional and personable. They offer a proactive approach to help prepare me each year, and continually search for opportunities and strategies that benefit me and my business most. As a business owner, preparing for taxes is never something I look forward to, but with K&R on my side I always know that I am getting the best service possible!
Blake Chiles
Blake Chiles
17:59 30 Aug 23
Stellar Tax Professionals!! They do taxes right. I have used K&R for the past 7 years and they really outshine others. Great support, tax planning, staff and company. I really appreciate these guys in so many ways. Richard, Kelly, Tonya, Keith and many more have taken the pain out of tax. Keep up the good work!!
See All Reviews
js_loader

Free Tax Guide

Complete the form and receive the guide in your email.