Ira qualified education expenses plus#

Under the new rule, in 2024, Ken or Lorraine (or, more specifically, the one designated as the 529 plan owner) can begin transferring those funds into Wendy’s Roth IRA. When Wendy graduates from college in 2023, there’s $30,000 left in the account. Here’s an example: Ken and Lorraine opened a 529 plan for the benefit of their daughter, Wendy, shortly after she was born in 2001. Transfers are subject to the usual annual limits on contributions to Roth IRAs (without regard to modified adjusted gross income limits).Transferred funds can’t include contributions made within the preceding five years or earnings on those contributions.The rollover must be accomplished through a direct trustee-to-trustee transfer.(Note that it’s not entirely clear whether changing beneficiaries restarts the 15-year clock.) The 529 plan must have existed for at least 15 years.Transfers are subject to a lifetime maximum of $35,000 per beneficiary.These tax-free rollovers are subject to several requirements and limitations: Under the SECURE 2.0 Act, beginning in 2024, you can transfer unused funds in a 529 plan to a Roth IRA for the same beneficiary, without tax or penalties. But there are more tax-efficient strategies to consider, including the newly authorized 529-to-Roth IRA transfer.

One option, of course, is to bite the bullet, pay the tax and penalties, and spend the remaining funds on whatever you wish. Whatever the reason, you need to figure out what to do with the unused 529 plan funds.

Or perhaps you saved for an Ivy League tuition, but your child decided to attend a less expensive state university. This can happen for many reasons: Your child may have opted not to attend college or received a generous scholarship that covers some or all of his or her tuition.

Ira qualified education expenses plus#

Earnings used for other purposes, however, may be subject to income tax plus a 10% penalty.įast-forward 15 years or so: You now have a substantial balance in your 529 plan, but your child doesn’t need all the funds for college expenses. Plus, the earnings used to pay qualified education expenses can be withdrawn tax-free. Contributions to these plans aren’t tax deductible, but they grow on a tax-deferred basis. A popular and effective tool for doing so is a 529 plan.

Given the exorbitant costs of higher education, many parents begin saving for college when their children are very young.