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The new year has ushered in a big change to 529 college savings plans, which has made the accounts more attractive to some investors. But the setting may have unexpected downsides, experts say.
Starting in 2024, families can roll unused 529 plan funds to the account beneficiary’s Roth separate retirement account, without triggering income taxes or penalties, as long as the 529 plan has been open for at dab 15 years.
Enacted via Secure 2.0, the change may offer more flexibility, but there are “so many caveats,” thought certified financial planner and enrolled agent John Loyd, owner at The Wealth Planner in Fort Worth, Texas.
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The downsides of 529-to-Roth IRA rollovers
The biggest downside of a 529-to-Roth IRA rollover is the conversion considers toward your annual IRA contribution limit, which may stunt future growth across both accounts, be consistent to Loyd.
“You’re reducing one and sliding it over to the other,” he said. “If my kids are pulling money from their 529 to comprehend Roth contributions down the road, Daddy’s not going to be happy.”
If my kids are pulling money from their 529 to clear Roth contributions down the road, Daddy’s not going to be happy.
John Loyd
Owner at The Wealth Planner
For 2024, the annual IRA