Rolling a 529 Into Something Else
A 529 plan offers an efficient tax-advantaged means of saving for college, with withdrawals tax-free when used to cover qualified educational expenses like tuition, books, fees and room and board costs.
At any time, you can change the beneficiary of your account, although more than one rollover within any year could incur penalties that could impact both your investments and financial aid eligibility.
You can roll it into a Roth IRA
If your beneficiary has unspent funds in their 529 college savings account, they may be eligible to move them directly into a Roth IRA without incurring taxes or penalties. This new option provides families who’ve saved for their children’s education through 529 plans but never use all or even part of them – such as when one doesn’t attend college as planned or receives scholarships – with another way to save.
SECURE Act 2.0 now permits beneficiaries of 529 accounts to transfer up to $35,000 into a Roth IRA within any one calendar year, provided it occurs through trustee-to-trustee transfers; annual Roth IRA contribution limits still apply, however.
Families saving in 529 plans had long expressed worries that not using their funds for educational expenses was penalizing, but with this new law coming into force they can use their saved funds for any type of expense related to education; such as books, university fees/tuition/trade school tuition/fees as well as K-12 private K-12 education expenses.
You can roll it into a traditional IRA
529 plans offer an efficient tax-advantaged means to save for education expenses from kindergarten through graduate school and apprenticeship programs, with age-based investment strategies managed by Fidelity as well as principal-protected bank products available. Furthermore, Secure Act 2.0 introduced several benefits specifically targeted towards those investing in 529s; including rolling over up to $35,000 of lifetime savings into a Roth IRA account.
As grandparents who want to help their grandchildren afford college costs, IRAs may be an attractive solution for helping cover college costs. But it’s important to keep in mind that withdrawing funds from an IRA will increase your income tax bill and may incur a 10% penalty if you withdraw before reaching age 59 1/2. It would also be prudent to consult a financial advisor first when making such decisions; find one now near you.
You can roll it into a brokerage account
If you’re searching for ways to save for the college education of your child, 529 investment plans could be an excellent choice. These accounts allow you to invest either within your state’s plan or another one and withdraw tax-free funds as long as they’re used towards qualified education expenses.
Your student account provides the chance for you to set aside funds towards his or her education without incurring taxes and penalties upon withdrawal. An alternative would be opening a traditional IRA that can later be converted to a 529 without penalties attached.
529 plans provide another advantage by enabling you to change beneficiaries without incurring a penalty, which may prove useful if your child opts out of college altogether or you wish to give money elsewhere. This feature is especially advantageous when opting for prepaid tuition plans which lock in today’s prices.
You can roll it into a trust
Establishing an irrevocable trust funded with 529 assets may provide relief from estate tax consequences; however, this solution has some drawbacks: for example, lump sum gifts are less tax efficient due to dollar cost averaging. Also if you die within five years after giving maximum gifts, their value must be included as part of your estate for taxation purposes.
Another advantage of this option is protecting assets from creditors, divorce proceedings and reckless spending. Furthermore, this option allows more flexible use of funds; such as paying for non-academic expenses like job training or vocational courses. This may come in especially useful should your child not attend college – even those looking for non-traditional education pathways such as becoming computer specialists or cosmetologists might benefit.
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