Saving for a child’s education is one of the most loving things you can do, and today’s 529 plans offer more flexibility than ever before. If you’ve been contributing to a 529, you may be wondering what options you have now that life (and legislation) has changed. At Griffin Black, we’re here to help you navigate those decisions with clarity and care. Here are a few timely opportunities worth knowing about.
You May Be Able to Roll Unused 529 Funds Into a Roth IRA
Thanks to the SECURE 2.0 Act, beginning in 2024, you can roll over unused 529 plan funds into a Roth IRA for the beneficiary — tax and penalty-free. This is a welcome option for families who saved diligently but didn’t use all the funds for college expenses.
There are, however, some important caveats:
- The 529 account must have been open for at least 15 years.
- The lifetime rollover limit is $35,000 per beneficiary.
- Annual contribution limits for Roth IRAs still apply, and the rollover must be within those limits.
This option can be especially useful if your child earns income and you want to jumpstart their retirement savings.
If you’re still concerned about saving “too much” in your child’s 529 Plan, remember that scholarship funds that your student is awarded can – as before – be withdrawn tax- and penalty free from the Plan. As a result, you don’t need to hold back if you think your child could be lucky enough (or good enough) to receive a merit award.
You Can Move Funds Between 529 Plans — Without Triggering Taxes
If you’re not happy with your current 529 plan (maybe the investment options are limited, or your state plan doesn’t offer a tax benefit), you can transfer your funds to another 529 plan. This is called a trustee-to-trustee rollover, and it can be done once every 12 months for the same beneficiary.
Here’s what to keep in mind:
- Even if you don’t move to another plan, you can also change the beneficiary, provided the new beneficiary is a qualified family member.
- Rolling over to a different state’s plan may affect your state tax deductions or credits, so it’s wise to check first.
Sometimes, switching plans can lead to lower fees or better investment choices. It’s all about aligning the plan with your goals.
Some States Let You Claim 529 Deductions Retroactively
In a few states, you may be eligible to claim a state income tax deduction or credit for 529 contributions made after the end of the calendar year (as long as you make the contribution before the state’s tax-filing deadline). This can be a valuable window if you didn’t max out your contributions before December 31.
States like Georgia, Iowa, and Wisconsin, among others, offer this type of retroactive tax benefit. Of course, each state’s rules are different, and the deadlines and deduction limits vary.
We Can Help. Whether you’re trying to make the most of leftover college savings or just getting started with education funding, 529 plans are evolving in ways that can support your family’s long-term financial health. But every opportunity comes with fine print—and that’s where thoughtful guidance can make a real difference.
In fact, we think that education funding is so important that we offer to open and manage 529 accounts for our Wealth Management clients without additional (advisory) fees. That’s because we believe it’s important to help families enable their children to achieve their educational goals with as low a debt burden as possible. It’s our way of helping client families achieve their goals.
We’ve put together a free Practical Guide for High-Income Families about How to Secure Your Children’s Future Without Sacrificing Your Own. This guide walks you through strategies that balance both priorities so you can have more confidence in your financial future.
Do you want help understanding your options? Book a free consultation with us. We’ll help you sort through the noise and make confident, caring decisions for the people you love.
