Tax Corner: 529 Plans Get a Facelift

The 529 College Savings Plan is a state-level plan that allows you to invest money for a beneficiary for future qualified educational expenses. At the federal level, the growth is tax-free, although contributions to the plan are not deductible (similar to a Roth Retirement Account).

Starting in 2024, you’ll be able to roll over the remaining funds in 529 plans to Roth accounts for the beneficiary. There are restrictions around it, including a maximum amount that can be contributed each year, a requirement the 529 accounts be 15 years old, a $35k cap on roll-overs, and no roll-overs made on contributions in the last five years.

We can’t overstate how significant this is - normally Roth contributions require earned income - this completely bypasses that qualification and allows you to set your beneficiary up with a good start for their retirement in their early 20s. And there’s no requirement if you have money in the 529 plan it has to be used for educational expenses, it could just sit there with the intent to contribute it to the beneficiary’s Roth in the future. I won’t be surprised to see this pop up on TikTok as a “tax-hack” for building wealth for your children.