529s – an option for education AND retirement

Key takeaways

• The flexibility of 529 plans is increasing, providing options for both education saving and retirement planning.
• Starting in 2024, 529 account holders will be able to transfer all, or a portion, of their plan to a Roth IRA for a designated beneficiary.
• Account owners must be aware of critical guidelines, such as holding times for 529 plans and maximum contribution levels.

529 plans continue to stand out as a great way to save for college. However, many investors hesitate to open a 529 account due to the unknowns around future education plans or needs of their loved one. Now, thanks to new legislation, these barriers have been removed. In January 2024, the SECURE 2.0 Act was introduced, which allows unused money in a 529 plan to be rolled into a Roth IRA in the name of the beneficiary.

What you need to know:

• The Roth IRA must be in the same name as the 529 account designated beneficiary.
• 529 account owners can rollover up to $35,000, in aggregate, to a Roth IRA account for the 529 beneficiary - limit is applicable to each designated beneficiary, not each account.¹
• The rollover is subject to Roth IRA annual contribution limits and the Roth IRA owner must have an annual income at least equal to the amount of the rollover.
• The 529 account must have been maintained for a minimum of 15 years. ¹
• The amount being transferred must have been contributed at least 5 years prior to such transfer (plus any earnings attributed thereto).
• Roth IRA income limits do not apply to such 529 to Roth IRA transfers when opening an account.

There are still some aspects about this process that require clarity, such as the impact on rollover eligibility when there is a change to the 529 account beneficiary, but we at BlackRock can help you navigate questions around this process.

As long you understand these details and plan ahead, these new benefits have the ability to play an important role in your retirement planning.

Continued flexibility with 529 plans

In addition to this new retirement option, 529 account owners experience many other benefits, including the ability to:

• Transfer the 529 account to another qualifying member of the family— a spouse, child, sibling, father or mother-in-law, first cousin or their spouse, a niece, nephew or their spouse or aunts and uncles, to name a few.
• Use the plan for private school tuition in grades K-12, graduate school education, apprenticeships or even education needs for the next generation.²
• Pay for up to $10,000 in qualified student loans over the lifetime of the account beneficiary, or their siblings.³

With this new rollover option in place, the industry should expect to see an increased demand for 529 plans. This enhancement nicely ties together education and retirement planning, and helps families prepare for better financial and life outcomes.

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