What is the new 529 plan rule in 2024? : 529 rollovers to a Roth IRA

What is the best way to save and invest for education? Many parents are looking for the answer to this question. A 529 plan is a tax-advantaged education savings plan offered by the US government, and it is a popular choice for many people. But a 529 plan is not only for education expenses. Starting from 2024, there is a new rule that allows you to convert your 529 plan into a retirement savings plan. How does this rule work, and what are the benefits?

What is a 529 plan?

A 529 plan is a special investment account that can be used for any accredited school in the US. You can also use it for K-12 education expenses since 2017, for apprenticeship programs since 2019, and for student loan repayment and Roth IRA account opening since 2024. The benefit of a 529 plan is the tax advantage. The money you invest in a 529 plan is tax-free, and when you withdraw it, you don't have to pay taxes if you use it for education expenses. There are two types of 529 plans. Education savings plans and prepaid tuition plans. Education savings plans allow you to earn tax-free investment returns and use them for education expenses without taxes. Prepaid tuition plans allow you to pay the current tuition in advance and avoid future tuition increases.

What is the new rule in 2024?

Starting from 2024, there is a new rule that allows you to convert your 529 plan into a retirement savings plan. This rule lets you transfer your 529 plan balance to a Roth IRA account if you are over 59 years old and the beneficiary is over 18 years old. A Roth IRA account is a tax-free retirement savings account that allows you to withdraw money without taxes if you are over 59 years old and have had the account for more than 5 years. A Roth IRA account can be used for purposes other than education.

This new rule makes your 529 plan more flexible and versatile. For example, if your child does not go to college or gets a scholarship and has leftover education expenses, you can convert your 529 plan balance into a retirement savings plan. Also, when you transfer your 529 plan to a Roth IRA account, you don't have to change the beneficiary. This means that you can increase your retirement savings for yourself.

However, there are some things to be careful about this new rule. First, you have to pay taxes when you convert your 529 plan to a Roth IRA account. If your 529 plan balance includes tax-free investment earnings, you have to pay income tax on that portion. Second, you have to follow the annual contribution limit when you convert your 529 plan to a Roth IRA account. As of 2024, you can only contribute up to $7,000 per year to a Roth IRA account ($8,000 if you are over 50 years old). This means that if your 529 plan balance is more than that, you have to convert it over several years.

A 529 plan is a great way to save and invest for education in the US. But it is not only for education expenses, but also for retirement savings. You need to understand the new rule that applies from 2024 and plan accordingly to your situation and goals. If you want to know more about 529 plans, visit [this site] or [this site]. Also, compare 529 plans with other education savings plans.