As a parent with two young children, I’m constantly reminding myself to be flexible. Just yesterday, as I was walking my four-year old into preschool, she stopped to pick up salt on the sidewalk. I was in a hurry to drop her off and get to work, but she wanted to know why someone put salt there, why salt helps melt ice, why she should leave it outside, etc. We had a much better experience when I adjusted my plans and answered a few questions that lasted at most two minutes. She appreciated my flexibility.
Likewise, I appreciate the flexibility that the newly passed SECURE 2.0 bill is adding into 529 plans. Up until now, 529 plans could only be used on education costs. If you had leftover funds, you faced a penalty to withdraw your money or you could transfer it to another family member for education.
Now instead of having to give your college fund to your step-brother, you can save it for your own retirement. Starting next year, up to $35,000 of 529 plan funds can be rolled into a Roth IRA for the beneficiary. The account must have been open for 15 years, and you are subject to the normal Roth IRA contribution rules.
This change eliminates the main drawback to saving in 529 plans. You don’t have to worry about getting the savings exactly right. Having a little bit left over after college is paid for isn’t a problem.
Before I know it, preschool drop off will have changed into college drop off. I’ll have too much time on my hands and have some big tuition bills to pay. I’d better keep saving in my girls’ 529 plans, knowing there’s no downside to over saving a little.
There’s much more included in that massive bill. Let me know if you’d like a review of how it will affect your family.
About the Author: John O’Connor
John has more than ten years experience as an Investment Advisor. He focuses on devising and maintaining portfolios that meet individuals’ needs, investment research, and investment strategy. John has been recognized as a “FIVE STAR wealth manager” by Twin Cities Business Magazine 2016-2022. He is a CFA charterholder and CERTIFIED FINANCIAL PLANNER™ Professional.
Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.