Dorm Room Leftovers
SGH Wealth Management’s “Read What I’m Reading” Mar. 2024 | Mar. 19th, 2024
It isn’t always certain whether the college path is a right fit for one’s child or grandchild but with the new Secure ACT 2.0 rules, you can now get a part of these unused college savings transferred directly into a Roth IRA. Option #1: You could revoke the money in the account, but that means they will be added back to your taxable estate, earnings will be taxable, and the IRS will assess a 10% tax penalty. Option #2: You can roll the money from one 529 plan to another one, tax-free, so that it covers another daughter or granddaughter. That allows you to jump-start another child’s or grandchild’s college savings. Option #3: Starting in 2024, you can transfer the stranded money to a Roth IRA with restrictions. One of the most severe is that the 529 plan must have been maintained for at least 15 years, and the amount transferred must come from contributions and earnings made at least five years before the transfer. The Roth IRA must have the same beneficiary as the 529 plan, meaning that the money can’t go back to an account held by the parents, grandparents or other children. However, the owner of a 529 plan can change the beneficiary to another person before the transfer. In 2024, the aggregate amount transferred from the 529 plan to a Roth IRA for any person cannot exceed $35,000. That means the transfer might not be a good option for parents whose child suddenly decides to forego college. But for leftovers, the money that would have gone to pay for college can be used to pay for future retirement expenses instead—and preserve its tax-free growth. *Check Founder Sam G. Huszczo, CFA, CFP’s Interview with CityWire in the top link below |
Keep In Touch