SECURE Act 2.0

On December 29, 2022, the SECURE Act 2.0 was signed into law as part of the Consolidated Appropriations Act of 2023. The goal of the SECURE Act—an acronym for Setting Every Community Up for Retirement—is to encourage saving toward retirement and also to expand employee participation in retirement plans. With the passage of SECURE Act 2.0 comes several adjustments to 529 educational savings plans.

How will SECURE Act 2.0 affect 529 plans?

The ways in which money in a 529 savings plan can be used have been expanded in recent years. Beginning in January 2024, SECURE 2.0 will further add to this expansion by allowing funds from an established 529 account to be transferred tax-free to a Roth IRA for the same beneficiary. At that time, unused educational funds will have the potential to kickstart a beneficiary’s Roth IRA savings. This change, however, will come with limitations.

• The 529 account has to have been open for at least 15 years.
• The beneficiary of both the 529 account and the Roth IRA must be the same person.
• The amount of the rollover will be limited:
  • Annual rollovers will be subject to yearly IRA contribution limits, minus any other IRA contributions that have already been made.
  • There will be a lifetime aggregate rollover limit of $35,000 per beneficiary.
  • Rollovers may not include contributions (or earnings) made in the last 5 years.

The IRS has not yet provided further guidance regarding these changes, and it is unclear when more guidance will come.